Over-regulation, taxes stifling innovation in beverages, tobacco

Operators in the food, beverages and tobacco sub-sector have urged the Federal Government to address concerns bordering on over-regulation and continuous imposition of taxes via excise duties and other levies, if they must remain operational.

Specifically, manufacturers in the tobacco industry are worried that the industry continues to budge under dynamic and ever-tightening regulation globally as well as increasing demands from consumers for safer alternatives with reduced public health risks.

These challenges to the industry’s value chain are further complicated by an unpredictable tax regime, thus, pushing tobacco manufacturers into innovating to not only suit dynamic consumer preferences but also secure business continuity sustainably into the future.

The excise duty for alcoholic beverages and tobacco was approved by President Buhari and took effect on June 4th, 2018. According to the former Minister for Finance, Kemi Adeosun, the excise duty rates were expected to spread over a three-year period from 2018 to 2020, to moderate the impact on prices of the product.

The excise duty is a combination of the existing ad valorem rate, with each cigarette attracting a naira specific rate stick. The projection was that by this year, tobacco should attract a N2.90 specific rate per stick or N58 pack of 20 sticks.

Already, weakened purchasing power of consumers, and higher costs of drinks as a result of excise duty introduced last year, led to slump in demand for alcoholic and non-alcoholic beverages.

To help the manufacturing sector, the Manufacturers Association of Nigeria (MAN), urged the government to reverse the Value Added Tax rate back to the pre-2020 Finance Act rate, and reduce the Personal Income Tax to a flat rate of 10% for one-year effective April.

According to MAN, this will improve the disposable income of Nigerian workers, stimulate consumption, promote an upsurge in demand and increase production output.

“We urge the government to grant manufacturers waivers from all demurrages payable between February and July 2020, especially those occasioned by the lockdown directives of Government and others associated with COVID-19 pandemic.

“Establish a special bailout fund for the manufacturing sector with set deliverables on the number of jobs to be created, the volume of export, quantum of locally raw materials utilized and projected revenue.

“Support manufacturing concerns with existing loan facilities by reviewing the terms, especially reducing interest rates to 5% with 2 years moratorium. For manufacturers that are investing in order to scale up production should be granted loans at 5% interest rate for a period of 5 to 7 years. This measure will no doubt improve liquidity and ramp up productivity in the manufacturing sector in a manner that will cover up for obvious losses due to COVID-19,” MAN added.

For the tobacco sector, operators noted that for the sustainability of the industry all over the world and especially in Nigeria, there is a need to redesign the excise tax regime beyond the continuous annual upward adjustments.

They said: “The reforms to be effected should balance consumer protection while considering the contribution of the tobacco industry into the economy. Policymakers should not just use taxes as a tool for limiting consumption, but also encouraging innovation.”

“Already, cigarette manufacturers are shifting towards safer alternatives: less risky, scientifically cleared substitutes with potential to cut well-documented health effects of consuming tobacco and nicotine.”