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Stakeholders kick as FG plans 100% hike in sugar tax

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Stakeholders kick as FG plans 100% hike in sugar tax

By Emeka Ejere

Against the back drop of government revenue constraints and the urgent imperative of increasing non oil revenue generation, the Federal Government may have concluded plans to raise the current tax on sugar in the 2024 Finance Act.

President Bola Tinubu had promised, while setting up the Taiwo Oyedele Committee on Fiscal Policy and Tax Reforms, that government would not increase tax burden on individuals and businesses to ensure productivity and improvement in the economy.

However, government, contrary to this stated tax objective, is planning to raise the tax on sugar from the current N10 per litre imposed by the 2021 Finance Act with a moratorium of, at least, five years, to N20 per litre, a hike of 100 percent, in an economy that is already crippled by inflation at 27 percent spiked by the twin factors of fuel subsidy removal and forex scarcity and devaluation of the naira.

As a consequence, most products have reached optimal price elasticity, which entails that producers can no longer raise prices of products to absorb rising cost inputs, such as this proposed sugar tax increase. Already, most businesses are struggling over power cost, which the Manufacturers association put at 30 percent of total cost of production, cost of energy, particularly, diesel, which has jumped by almost 600 percent from about N240 pre-Covid to N1100, and exchange rate from N460 in 2022 to N780 in August 2023.

More over, the proposed sugar tax contradicts the position of the Oyedele Committee, which in an interim report, proposed what he called “quick wins and low hanging fruits”, which include removing impediments to business and trade, comprehensive review of tax regulations to ensure simplicity, cutting public financial waste, incentivising productive activities, reducing the number or multiplicity of taxes, etc.

According to industry trade group of MAN, the N10 per litre tax constitute a major disincentive to the sweetened sugar beverage production and also inconsistent with the National Sugar Development policy, contained in the Sugar Master Plan, which aims to make the country self sufficient in sugar supply by promoting its production.

Key to this initiative were three Nigeria’s biggest industrial conglomerates —Dangote flour, Nigeria Flour Mills, and BUA — enlisted as anchor players for the initial decade. Guiding this monumental effort to fortify local sugar production was the National Sugar Development Council, acting as the pivotal policy platform.

The NSMP, a comprehensive 10-year roadmap policy, contains a grand vision to resurrect Nigeria’s once-thriving sugar sub-sector and elevate the nation to the esteemed status of a leading sugar producer in Africa. Before the introduction Structural Adjustment Programme SAP, in 1986, Nigeria boasted of large sugar companies, such Tate & Lyle, Bacita Sugar etc, which made the country a major sugar producer.

The Sweetened Sugar Beverages tax, embedded in the Finance Act of 2021, levies a N10 tax on each litre of all non-alcoholic and sugar-sweetened carbonated drinks, as part of efforts to discourage excessive consumption of sugar, which it claims contributes to the burden of non-communicable diseases, such as obesity, diabetes, among others.

As the collective voice of industry stakeholders, MAN highlights the tangible repercussions of such a decision. On the surface, this proposal may appear as a straightforward measure to manage sugar consumption. However, beneath the surface, a complex economic conundrum unfolds.

Stakeholders are asking this fundamental question, namely, how government could be promoting sugar production through the NSMP, while at the same time, heavily taxing industrial consumers of sugar, which would discourage consumption, and negate the effort and resources deployed in promoting sugar production? Because, the aim of production is to encourage it consumption, otherwise, it does not make economic sense to produce.

“If the government is genuinely committed to realizing self-sufficiency and fortifying the local sugar industry through the NSMP, then why simultaneously impose a tax on sugar consumption that has the potential to stifle the very industry it seeks to promote?, MAN queries in its position statement.

The primary sector set to be affected by this proposed tax hike is the Food and Beverage industry—a significant contributor to Nigeria’s economic landscape. Local industries heavily depend on domestically sourced sugar. The inevitable outcome of higher taxes on sugar-sweetened beverages is the likely surge in the prices of these products. In a nation where consumers are particularly price-sensitive, this price increase is poised to lead to a reduction in demand for these goods.

In a statement, the association said, that the consequences of this demand reduction are not to be taken lightly, as it could potentially translate into a dwindling revenue stream for the government at the long run, coupled with the very real threat of job losses within the Food and Beverage sector, hence worsening the current high unemployment rate ravaging the country.

Moreover, the price hike may inadvertently push consumers towards the consumption of unregulated and illicit sugar-sweetened products, further complicating the issues of public health and regulation, which the government initially intends to check.

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In the words of Dr. Segun Ajayi-Kadir, Director-General Manufacturers Association of Nigeria: “As the Manufacturers Association of Nigeria, we endorse the Nigeria Sugar Master Plan as a pivotal driver of economic revitalization and self-sufficiency in the sugar sub-sector.

“However, the recent proposal to increase the tax on sugar-sweetened beverages poses a substantial challenge to our collective vision. It casts doubts on the necessity of a balanced approach that encourages local sugar production while securing our nation’s economic stability and job security.

“We believe that the delicate balancing act between these objectives necessitates thoughtful consideration and a more harmonious strategy to achieve our shared goals.”

As the argument rages and the nation charts its course towards a more sustainable future for its sugar sub-sector, policymakers are urged to heed the concerns and insights raised by industry stakeholders. With the economy in dire strait, the ultimate goal is to find a harmonious equilibrium that not only resurrects the sugar industry but also nurtures a thriving, competitive, and robust economic landscape, thereby edging Nigeria closer to its vision of becoming a leading sugar producer in Africa.

The Sugar Master Plan was formulated in September 2012, and its implementation commenced on January 1, 2013. Government’s endorsement of the NSMP and its adoption as the guiding framework for sugar sector development underscored its commitment to leveraging agriculture and industrial manufacturing to diversify the nation’s economy and revenue streams. This initiative was poised to create significant employment opportunities for the citizens, marking a pivotal step in the nation’s economic and agricultural transformation.

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