The recent campaign by some pro-sugar tax advocates, especially the Corporate Accountability and Public Participation Africa (CAPPA), asking the federal government to consider increasing the Sugar-Sweetened Beverages (SSB) Tax from N10 per litre to N30 per litre representing a 200 percent increase has sparked a debate about its potential impact on the Food & Beverage Industry (F&BI). While some argue that the tax hike is necessary to curb excessive sugar consumption and promote public health, others express concerns about its potential to stifle industry growth and investment.
A holistic review of the global food and beverage industry shows that the sector remains crucial to every economy of the world and the realities in Nigeria are not different. In recent years, the performance and contribution of this sector to the Nigerian economy have grown in value and relevance. For example, data from the World Trade Organisation (WTO), shows that the food and beverage sector is estimated to contribute 22.5 percent of the manufacturing industry value, generating an estimated 1.5 million jobs and 4.6 percent of the country’s Gross Domestic Product (GDP).
The Food and Beverage sector encompasses a wide range of businesses, cafes, food producers, and beverage manufacturers. It provides employment opportunities, contributes to exports, and plays a pivotal role in stimulating economic growth. Beyond its economic value, this industry forms the very fabric of Nigeria’s daily lives, shaping its culture and social interactions.
The Nigerian F&BI operates within a complex tax landscape and its operations are subjected to a variety of levies at the federal, state, and local levels. These taxes include corporate income tax (CIT), value-added tax (VAT), excise duties, stamp duties, and withholding taxes. These are outside numerous taxes by the Local Governments and other government agencies. The cumulative tax burden on the industry is substantial, often reaching 30-40 percent of their annual profits.
The scale of taxes relative to revenues and profits varies across businesses within the F&BI. However, the overall tax burden is considered relatively high compared to other industries. This has the potential to put a strain on the sector’s financial health and limit its ability to invest in growth and innovation.
To contextualize the tax burden on the Nigerian F&BI, a global comparison is necessary. The average corporate income tax rate in Africa is 28.5 percent, while the Organisation for Economic Co-operation and Development (OECD) average is 23.8 percent (the OECD is a unique forum where the governments of 37 democracies with market-based economies collaborate to develop policy standards to promote sustainable economic growth). Nigeria’s 30 percent Corporate Income Tax (CIT) rate falls within this range, but the overall tax burden is likely higher due to additional levies.
This recent call has therefore become worrisome in view of the fact that the industry has in recent time been burdened with excessive taxes. Continuous imposition of taxes has its implications that may likely affect the country negatively.
Recall that over the years, many multinational companies have been forced to relocate their operations out of the country due to harsh and non-conducive operational environment that have impeded ease of doing business. The fear being raised by industry watchers is that Nigeria may once more witnessed mass exodus of beverage industries from the nation’s business landscape if the Federal Government goes ahead to heed to the call for increase in the SSB Tax.
The consequences of excessive taxation on the food and beverage industry are far-reaching, affecting not only businesses but the entire nation’s economy one of which is the likely reduction in the GDP Contribution. This is because excessive taxation will lead to reduced economic activity in the industry, with the ultimate effect of causing a decline in its contribution to the nation’s GDP. This, in turn, diminishes the sector’s ability to create jobs and drive economic growth.
Analysts are of the opinion that the proposed 200 percent increase in SSBs tax appears to contradict the government’s objective to streamline taxes and create a more business-friendly environment even as additional tax burden is likely to increase the administrative complexity for businesses, adding to their operational costs.
Suffice to say that increasing the SSB Tax at this time may have a significant impact on the F&BI. Businesses will likely face increased costs, which could lead to price hikes for consumers. This could dampen demand for SSBs, potentially reducing sales and profits which will at the long-run lead to job losses and worsen the current alarming unemployment rate in the country. It will also undoubtedly increase the costs of doing business within the F&BI. Businesses will need to factor in the additional tax burden when making pricing and investment decisions. This could lead to a slowdown in industry growth.
Besides, a tax increase will also have a chilling effect on investments within the F&BI. Businesses may be hesitant to invest in new projects or expand their operations if they face an uncertain and potentially higher tax burden. The overall effect of this is that it could hinder the industry’s overall growth and job creation potential.
Industry watchers have consistently said that while the government’s intention to promote public health is understandable, striking the right balance between tax revenue generation and economic sustainability will be pivotal in preserving this vital economic pillar while fostering growth and innovation in the industry.
They submitted that a carefully calibrated tax policy that considers the industry’s tax burden in a global context and aligns with the government’s objective to streamline taxes, is crucial to ensure the sustainable growth of the F&BI and its contribution to the Nigerian economy.
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