Nigeria: Don’t Tax Soft Drinks
The Federal Government is considering introducing excise duties on carbonated drinks, according to Minister of Finance, Budget and National Planning Mrs Zainab Ahmed. She revealed this to newsmen on the side-lines of the just-concluded World Bank/IMF Annual Meetings in Washington, DC. She said the idea, besides the proposed increase in VAT, was one government was looking at to broaden its revenue base.
Mrs. Ahmed said government was working hard to ensure efficiency in existing revenue streams while searching for new ones. She said government would consult with all stakeholders on the proposal in line with standard policy. “Any tax that you are introducing will involve a lot of consultations and also amendments of some laws or introduction of new regulations,” she said.
Mrs Ahmed said her ministry was working with all the agencies to ensure that collaboration was strengthened in revenue generation. She said government is trying to ensure that agencies complement each other in their work. She also said the Federal Ministry of Finance has now put in place a rigorous monthly reconciliation of revenues to ensure that leakages are minimised. She reiterated government’s resolve to sanction revenue generating agencies that fail to meet their targets. She said targets will be set for ministers as well as heads of agencies and that there would be consequences when targets are not met. Government will provide all the support that agencies require in order to perform, she said.
Excise duty is a tax levied on locally produced goods. The most popular carbonated drinks here are soft drink brands such as Coca Cola, Sprite and Fanta. Soft drinks are not a luxury here. Like bread, they serve as meal for the urban poor such as petty traders, drivers, roadside mechanics, construction labourers and commercial motorcyclists. This category of Nigerians would be worst hit by the proposed introduction of tax on soft drinks which will lead to a hike in their prices.
Although the federal government did not cite health reasons for the proposed introduction of tax on soft drinks, over-consumption of carbonated drinks is generally linked to obesity and diabetes. Some countries including Australia, France, Denmark, United Kingdom and many others have, for health reasons, adopted this tax regime on carbonated drinks. The goal is to reduce sugar intake among people. Nonetheless, there are no statistics to show that the urban poor who are the largest consumers of soft drinks in Nigeria drink as much as would expose them to health risks.
Many Nigerians believe that they are already overburdened with too many taxes, citing the recent 50% increase in Value Added Tax (VAT) and the upward review of electricity tariff. Pay As You Earn (PAYE) is also part of the taxes paid by those who earn their living through monthly wages. The proposed tax on carbonated drinks shall therefore be an additional burden.
Apart from coming under pressure from the International Monetary Fund [IMF] to remove oil subsidy as a way out of fiscal challenges, an advice that the federal government is reluctant to heed, it is obvious in the face of perpetual budget deficit that government is determined to introduce new tax regimes. The Finance Minister said at a National Assembly public hearing on the 2020 budget that “additional tough economic measures will be taken to generate more revenues to fund 2020 budget.”
Regrettably, a large number of taxable individuals and groups do not pay tax. Tax evasion arising from organised corruption, which generally characterizes tax administration in the country, is also a major factor. Speaking recently at a conference on combating offshore tax evasion in Abuja, Executive Chairman of FIRS Tunde Fowler said Nigeria loses about N5.4 trillion to tax evasion annually.
If only government can substantially block those tax leakages, its revenue problems will be over. How much revenue can it generate from taxing soft drinks compared to recovering money from tax evaders? Given the ripple effect that may follow, government should leave soft drinks alone and look elsewhere for money.
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