News Summary:
- The Nigerian federal government has raised alcohol and tobacco excise duty rates, putting businesses in jeopardy amid double-digit inflation and the highest cost of doing business in 17 years.
- Industry experts warn that the increase in taxes will lead to reduced demand, slimmer profit margins, and job losses at smaller brewing companies, eventually hurting the entire supply chain.
- The World Bank had previously suggested Nigeria increase these taxes to generate more revenue, but the country still lacks a comprehensive alcohol control policy to address the growing harm caused by alcohol consumption.
The revised excise duty rates (taxes) imposed by the federal government on alcoholic beverages and tobacco products will put the future of the sector in jeopardy.
Financial Watch learned in another report that the tariffs on alcoholic beverage firms will increase in June.
The total specific rate for beer and stout, wines, and spirits (per litre) is N300 in the 2023 Fiscal Policy Measures (FPM) document, up 114.3 percent from N140 last year. It was signed last month by Zainab Ahmed, minister of finance, budget, and national planning. Tobacco sticks now cost N8.20, a 95.3% increase from N4.2 in 2022.
In comparison to the prices they were expected to pay this year before the review, it is 76.4 percent higher. In 2024, it will be 32.5 percent (N408) higher.
Alcoholic beverages and tobacco products had an ad valorem rate of 110 percent in June, up from 70 percent the previous year. The ad valorem rate for the next year is 110 percent.
Before the taxes were altered, the total ad valorem rate for June was 70%.
Experts claim that the fiscal policy is not business-friendly at a time when double-digit inflation and the highest cost of doing business in 17 years are both present.
The additional excise taxes, according to Taiwo Oyedele, West Africa tax leader at PwC Nigeria, surpass the 2022–2024 agenda set by the 2022 FPM.
“It is policy inconsistency to approve tax rates for a period of time and then change the rules halfway through the implementation without any compelling justifications or appropriate engagement with the affected industries,” he said, especially at a time when they have experienced a significant decline in sales as a result of the recent naira shortage.
Not more taxes, but enabling policies from the government are what the industry needs.
Alcohol and cigarette sales will decline because customers do not view them as fundamental necessities, according to Gabriel Idahosa, deputy president of the Lagos Chamber of Commerce and Industry.
He added, “We should also anticipate slimmer profit margins for businesses and reduced returns on investments for shareholders.”
He cautioned that declining demand and profit margins would drive out or force job cuts at smaller brewing companies.
He claimed that in the end, it will hurt everyone along the supply chain, from the people who source the raw materials to those involved in the country’s transportation and distribution of the products, further lowering the GDP.
According to Idahosa, the detrimental effects won’t last into the next quarter or two until the May policy review by the next administration.
Products made locally are subject to indirect excise taxes. They prevent the purchase of dangerous products and bring in money for governments that are short on funds.
The tax on cigarettes and alcohol in Nigeria increased in March 2018 from N0.2 per centilitre (Cl) in 2016. With the exception of tobacco, ad valorem taxes on alcoholic beverages were removed under the upward review from June through 2020.
According to a PwC document from 2018, wine was taxed at N1.25 and N1.5 per litre, while beer and stout were taxed at N0.30 and N0.35 per litre in 2018 and 2019 and 2020, respectively. In 2018, spirits were N1.00 per litre; in 2019, they were N1.75, and in 2020, N2.00.
Each cigarette stick costs N1.00 in 2018. It cost N2 per stick in 2019 and N2.90 in 2020. Beer and stout were subject to a 20% ad valorem levy in 2023; this fee increased from N40 per litre in 2022 to N75 per litre in 2023.
Spirits and wine were subject to a 30% tax. Spirits are now N150 per litre, and wines are now N75 per litre. The tobacco ad valorem charge was hiked from N4.2 to N8.20 per stick while remaining at 30%.
Due to high foreign exchange, energy, transportation, and taxing costs, Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise, warned that the brewery and other related industries may be completely eliminated by the revised excise rates.
The alcohol industry has been mistreated by the government. Many people experience difficulty. And these new levies may force them to close their businesses because they are already having trouble making sales due to sluggish demand brought on by the nation’s high inflation rate.
According to Yusuf, the increased rates will reduce industrial earnings and profits, making it more difficult to pay for education, business income, and value-added tax. Killing customers won’t increase revenue, they say.
Abiola Gbemisola, a consumer products analyst at FBNQuest, encouraged brewers to alert customers about tax increases.
The public will pay. To let people know that the government is taxing them heavily, they need to run a campaign on the tax rise. “That is the only way they can pass on costs without hurting their business,” he asserted.
He pointed out that they will still face pressure even if they don’t raise prices to preserve market share or competitiveness.
According to AsokoInsight, beer commands a 55% market share in the alcoholic beverage sector, followed by spirits (30%) and wine (15%). Spirits are currently a priority for Guinness Nigeria Plc.
Due to excise duty rises, Nigerian Breweries Plc, International Breweries Plc, and Guinness Nigeria have battled in a challenging operating environment since 2019.
Between 2019 and 2021, costs doubled as a result of high excise duties.
The excise tax system and significant currency depreciation, according to London-based strategic market research firm Euromonitor International, increased the cost of imported raw materials, causing firms to increase prices. Prices for alcohol units increased by almost 20% in 2021.
With revenue of N337 billion, up 4.3 percent from N323 billion in 2019, Nigerian Breweries declared a profit of N7.4 billion in 2020, down 54% from N16.1 billion in 2019.
Despite a 3.3 percent increase in revenue to N136.7 billion in 2020, International Breweries lost N12.3 billion. In contrast to its N4.12 billion loss in 2019, Guinness Nigeria lost N11.4 billion in 2020. Revenue for 2020 decreased 18% to N108 billion.
Revenue for Nigerian breweries increased by 51% to N437.3 billion in 2021 from N337.1 billion in 2020, while increases for Guinness and International breweries were each 30% and 29%, respectively, to N109.1 billion and N206.8 billion.
While Nigerian breweries’ earnings increased 71.9 percent to N12.7 billion from N7.4 billion, Guinness’ profit increased to N1.3 billion from a loss of N12.4 billion in 2020. Compared to last year, International Breweries lost N21.6 billion.
Earnings at Nigerian breweries increased by 4% to N13.2 billion in 2022 from N12.7 billion. At N550.6 billion, revenue increased 26%. From N17.7 billion, International Breweries lost N21.6 billion. From N182.3 billion to N218.7 billion, revenue increased by 20%.
Guinness’ first-half profit decreased by 54.4 percent from N8.9 billion in 2021 to N4.0 billion. Revenue increased from N109.1 to N118.5 billion.
According to Yusuf of CPPE, the government should reassess taxes because it is not the appropriate time to tax manufacturers. Since sorghum and maize are typically grown in the North, the brewery industry has a strong backward integration strategy.
The World Bank suggested that Nigeria increase the excise taxes on alcohol and cigarettes in 2021 to collect more than N600 billion annually.
“On alcohol and tobacco, Nigeria applies an ad valorem rate of 20%, which is less than half the median of its African peers,” said Rajul Awasthi, a senior tax analyst at the World Bank. Ad valorem excises could still be used in Nigeria, but specific ones could be added to increase revenue.
According to the World Bank, the biggest economy in Africa has one of the lowest excise taxes on alcohol, tobacco, and cigarettes.
According to the WHO’s 2018 Global Status Report on Alcohol and Health, Nigeria reported high per capita alcohol consumption in 2016, at 25.5 litres.
Despite the growing harm caused by alcohol, according to Movendi International, the nation lacks a comprehensive alcohol control policy.
According to a recent article, “the government has not implemented many of the recommended restrictions and regulations for controlling the harm caused by alcohol, such as a legal drinking age, sales restrictions, or advertising bans.”
The increase in excise taxes is a positive step by the government towards preventing and reducing alcohol-related harm, and it is a WHO-recommended best option for lowering alcohol consumption.
To lessen the rising alcohol harm in the nation, Nigeria must concentrate on developing a solid alcohol control policy that covers the essential areas suggested by the WHO Safer Package.