Between sin tax and keeping Nigerians healthy

As soon as the gavel came down on the Finance Act 2021, President Buhari wasted no time in signing it into law. Unlike the amendments to the Electoral Act, which seems to have pitched the two arms of government against each other, both the legislators and the executive were on the same page on the Finance Act 2021.

After all, this is all about increasing the revenue available at the disposal of both parties. The taxpayers, who bear the burden really have no say and in any case, taxpayers are never at the table during such considerations. The Lord’s rule and the servants must obey!

Perhaps as a response to the recommendation of the World Bank, one of the key amendments in the Finance Act 2021 is the introduction of an Excise Duty of N10/litre imposed on all non-alcoholic, carbonated and sweetened beverages. It’s a form of sin tax, which is levied on the consumption of goods that can have a negative impact on health.

Perhaps, copying the developed markets, where goods like sugarsweetened beverages, tobacco, and alcohol are being taxed to act as a deterrent and discourage people from consuming those products while also serving to raise additional revenue for the government, the Buhari-led administration is not looking back on the new tax, notwithstanding the myriad of arguments from the Manufacturers Association of Nigeria (MAN).

The manufacturers have warned that the new tax would undermine productivity, jobs and overall contribution of the Food and Beverage subsector to the gross domestic product. Estimating some N81 billion potential revenue from the new sugar tax over the next four years, MAN argues that the government would ultimately lose more revenues from Value Added Tax and Companies Income Tax, as a result of expected 40 per cent reduction in the subsector’s revenue over the period.

Interestingly, MAN which kicks against the tax, in the interest of its members may be doing so because of the increasing price elasticity of demand for Carbonated Soft Drinks (CSDs), especially as the producers of these drinks have increased prices of their products by between 30% and 50% over the past 12 months, with little or no headroom to pass on the tax to their consumers in the form of higher prices. Beyond the increasing fragmentation of the industry, as new entrants continue to launch new products, manufacturers of carbonated soft drinks are also facing stiff competition from homemade substitute drinks.

Already, the retail price of a 50cl bottle of carbonated soft drinks is N150 and it would be difficult for manufacturers to fully pass additional N5 indirect tax to the final consumer, hence manufacturers would have to bear the burden, at best, alongside wholesalers, whose profit margin may be eroded by the tax. In effect, a

N5 retail price may neither increase the retail price of the product nor change the consumption pattern. At best, the retail price would help established industry leaders, which have the benefit of large volume to better outcompete smaller peers, who may opt out of the industry, as their profitability shrinks.

Genuinely or otherwise, the government advocates that the sugar tax is aimed at discouraging excessive consumption of sugar in beverages that contributes to diabetes, obesity and so on, while also raising revenue for health-related and other critical expenditures. The question is, will the tax, which may not likely increase the retail price of the product, really serve the purpose the government claims. More so, if the government is so concerned about Nigerians’ obesity and diabetes, what is the overall nutrition level in the country?

Indeed, what is the government spending on health? Contrary to the 2001 Abuja Declaration of the African Union, which requires Nigeria and other African nations to spend 15% of their annual budget on health, President Buhari is committing barely 5.1% of the 2022 budget to healthcare, most of which is recurrent expenditure. Most Nigerians’ obesity stems from malnutrition, given the dominant reliance of Nigerians on carbohydrates.

So, if the government is genuine in its concern for Nigerians’ health, it should embark on a policy of enhancing the overall nutrition of the people. For instance, while the sugar content in carbonated soft drinks is truly high and should perhaps be checked, what of the confectionaries and ice creams, including imported sweets, which have flooded our markets, and have become daily snacks for children. While this sugar tax seems to target local producers of carbonated soft drinks and beverages, to ensure fairness and equity, imported soft drinks should also be subjected to the tax, otherwise, the sugar tax may inadvertently ship jobs to our neighbours.

Come to think about it, most Nigerian staple foods are carbohydraterich. What would the government do to checkmate the consumption of these equally “sugar-based” products and possibly enhance Nigerians’ access to protein, fat and vitamins-rich food? Would Akpu, Amala, Fura, Semolina and many of the Nigerian foods that are largely carbohydrate be taxed as well.

It would be unfortunate if this sugar tax ends up being used to fund the apparently bogus fiscal structure and ostentatious lifestyle of our political elites.

The government should not give Nigerians the reason to think they are being extorted under different disguises to fund the unfortunate luxury of our political structure.

Hopefully, this time, as they copy sugar tax from abroad, they would learn to copy and practise the ways those countries also administer and put the tax to the use of their citizens.