Everything Wrong about Nigeria’s new Sugar Tax

The Federal Government has imposed a sugar tax of N10 per liter on all non-alcoholic, carbonated, and sweetened beverages in the country. This charge is one of the new policies included in the Finance Act, which President Muhammadu Buhari signed into law on the last day of 2021.

The Minister of Finance, Budget, and National Planning, Zainab Ahmed, during the public presentation of the 2022 budget in the first week of January, said that they introduced the new sugar tax to raise excise duties and revenues for health-related and other critical expenditures in the 2022 budget.

Excise duty is an indirect tax levied on manufacturers for the production, licensing, and sales of certain goods. According to the minister, this policy will discourage excessive sugar consumption in beverages. And because it contributes to several health conditions like diabetes and obesity, the government thinks this tax will raise revenues for the health sector. If you think about it, this argument is flawed. Excessive sugar consumption is not the only known cause of diabetes and obesity; neither is increased taxes the solution to diabetes.

There are two things we need to note here. First, the government wants to prevent Nigerians from having diabetes and obesity by collecting more taxes from beverage companies. And second, the primary aim of the government is to source funds to cushion its budget deficit, as it is projected that this excise duty will bring about N81 Billion to the government’s coffers in three years. Despite these seemingly lofty aims, we must understand that this is a bad idea economically.

If the FG imposes this tax policy, it will affect manufacturers. Segun Ajayi-Kadir, Director-General, Manufacturer’s Association of Nigeria (MAN), posits that the beverage sub-sector alone will lose about 40 percent in revenue within the next five years. Ayuba Wabba, the President of the Nigeria Labour Congress NLC, in his letter to the President, added that the policy would translate to a loss of N1.9 trillion to the sector. As a result, the government will lose N197 billion in VAT, Company Income Tax, and Tertiary Education Tax to make a possible N81 billion between 2022 – 2025.

Aside from the negative impact on the sector and the loss of revenue to the government, introducing a sugar tax is not morally acceptable because it transfers the cost of a bloated and inefficient government to ordinary consumers. These are millions of Nigerians who derive pleasure from having a chilled bottle of carbonated or sweetened drink to soothe their thirst after a long day at work. These consumers are the ones who will bear the brunt. It will not only increase the cost of their cherished drinks, but it will also take the jobs of some of their friends.

The organised labour group in the sector, the National Union of Food, Beverages and Tobacco Employees, NUFBTE, asserts that implementing the new levy could cost about 15,000 direct and indirect job losses for casuals and contract workers. Nigeria’s unemployment rate is already high enough at 33%; why make it worse?

Let us not forget that this industry is the largest industrial sub-sector in Nigeria, representing 38 percent of the entire manufacturing output in the country. In five years, the sector has created about 1.5 million jobs and generated N202 billion in VAT.

What is most disturbing about the government’s proposition is the defiance of the consumer’s right to decide and choose what is good for them, instead of the government playing the big daddy trying to discourage people from taking drinks that they find refreshing.

Policies like this discourage foreign direct investment and cause companies to move production facilities to neighbouring countries with less suffocating taxes. Therefore, the government should focus on what’s important: providing a suitable environment that allows businesses to thrive, reduce executive spending, and efficient use of funds raised through taxes instead of trying to overtax the producers and the consumers.

Olumayowa is the Chairman, Foundation for Consumer Freedom Advancement, and author of Navigate: A Prospection of Nigeria’s future till 2030.

First appeared in Business Day.

Photo by Maddi Bazzocco on Unsplash.