Collapse of the Soft Drinks Sector Looms – Sectoral Group of MAN Cries Out!

The carbonated soft drinks sub-sector of the Manufacturers Association of Nigeria [MAN] has raised a discomforting alarm over the Federal Government’s proposed 20 per cent Ad-valorem Excise Tax on Non-Alcoholic Beverages which covers the widely consumed Carbonated Soft Drinks [CSD] segment. The sectoral group heads rising from a meeting on Thursday 17^th November 2022 in Lagos, posited that such a move will spell doom for the sector as the effect of the prevailing N10 [Ten Naira] per litre tax regime is already crippling the sector with its biting effects on their businesses.

Industry study already indicates the impacts of the prevailing N10 per litre excise tax effect between June and August 2022 shows a – 8% revenue decline as a direct result of excise tax implementation. It is projected that the decline will hit –25% by December 2022 if not reviewed. This excludes the cost of write-offs of products produced, excised but not sold. With the proposed 20% Ad-valorem tax introduction, the collapse of the soft drink market is imminent. This will be catastrophic as thousands of jobs will be affected and the ultimate aim of the government in collecting revenue will be completely defeated.

‘’Most certainly the additional 20 per cent will not only kill the sector but result in the loss of revenue by the Federal Government, and a consequential phenomenal loss of jobs by various layers of the Nigerian workforce.’’

This sectoral distressed position was laid bare on Thursday, November 17^th, 2022 by the Soft Drinks Manufacturers Sub-sector of the Manufacturers Association of Nigeria [MAN], which accounts for 33 per cent of the entire manufacturing sector in Nigeria.

Interestingly, the manufacturing industry contributes 15 per cent to the Gross Domestic Product (GDP) of the Nigerian economy, while the food and beverage sector contributes 5 per cent, and with a payment of N202 Billion to the government on Value Added Tax (VAT), and N207 Billion in Company Income Tax, an enormous amount that would be lost by the Federal Government if the sector is allowed to collapse, which will have a multiplier effect on infrastructural development and growth of the already troubled economy.

According to the Nigeria Bureau of Statistics (NBS), the food and beverage division of the economy in the last five years generated 1.5 million jobs, both direct and indirect, and it was from 2020 to date, that some companies in the sector strived to pay Minimum Tax, which is a pointer to the fact that the business climate is deteriorating, as the companies are finding it difficult to carry out their operations effectively.

There is evidence that the current N10 per litre excise tax on non-alcoholic beverages is ravaging the sector as the companies pay N10 (Ten Naira) for every litre of beverage produced, whether or not sold.

Speaking at the meeting with one voice, the sectoral heads decry the devastating effects of the N10 per litre tax, which has become burdensome with the high cost of operation in the country and its constituent elements. This is already having devastating effects on the end-cost to consumers, considering their poor economic condition; an additional 20 per cent will most certainly kill the sector.

They, therefore, called for the suspension of the catastrophic excise tax being proposed by the Federal government to forestall the collapse of the industry.

Corroborating this position, Ekuma Eze, Corporate Affairs and Sustainability Director, Nigerian Bottling Company (NBC) pointed out that the N10 per litre currently in practice has no bearing on profitability for any of the members of the sectoral group.

He stated that since the introduction of the N10 per litre Excise Tax, businesses in the sector have been experiencing a worrisome decline, the average loss in volume and revenue is -10 per cent between June to September 2022, and it is estimated that the decline will further worsen to -25 per cent by December 2022.