On the last day of 2021, President Muhammadu Buhari signed the 2022 Appropriation Bill and the 2021 Finance Act into law. In the Finance Bill, the government proposed various tax law changes that are effective from the 2nd of January 2022.
Some policies included in the Act are an increase in the education tax from 2% to 2.5% of the profits of Nigerian companies, empowering all tiers of government to borrow for “critical reforms of significant national impact,” and imposing an excise duty of N10 per litre on non-alcoholic, carbonated and sweetened beverages, among others. This, in another term, is called a sugar tax, which simply means the charges designed by the government to reduce the consumption of drinks with added sugar.
When presenting the 2022 budget, the Minister of Finance, Budget, and National Planning Zainab Ahmed revealed that the government raised the tax on sugary drinks to fund health-related expenditures in the 2022 budget. She added that the policy would discourage excessive sugar consumption in drinks, which contributes to several health conditions like diabetes and obesity.
When you think about it, this sounds good. But in reality, its consequences are grave when we look at it from the angle of sound economics. What do I mean? Naturally, every rational individual knows what’s best for him or her. This understanding is why people choose to eat and live in a way that pleases them without causing harm to others. Even though the pro-health considerations are admirable, let us not be fooled. When the government imposes a levy on drinks, it is not so much about helping people make healthy choices, but more about increasing revenues to make up for its deficit spending. This is the primary aim of the new sugar tax.
What are the implications of the sugar tax on Nigerians?
Dr. Muda Yusuf of the Centre for the Promotion of Private Enterprises, (CPPE) says it is insensitive and inappropriate given the prevailing harsh economic and business conditions. Coming when the country’s business environment is experiencing volatile inflation and slowly recovering from the heat of a pandemic, this will take us backward as a nation because it will have a negative impact.
First, there will be a loss of jobs for workers in the food and beverage sector. The Nigerian Labour Congress President, Ayuba Wabba asserted that “at least, it will cost no less than 15,000 direct and indirect jobs.” This will add to the already high unemployment rate, which currently stands at above 33%.
Besides the imminent job loss that will result from this tax policy, the food and beverage sector will suffer output contraction, which according to the Director-General of Manufacturer’s Association of Nigeria (MAN) Segun Ajayi-Kadir, will cause a revenue drop of up to 40% in the next five years. This would translate to a loss of N1.9 trillion for the sector.
As the highest contributor to the country’s Gross Domestic Product (GDP), putting such an enormous tax burden on this industry can be likened to killing the goose that lays the golden eggs.
It is wrong for the government to introduce policies that suffocate the private sector because it wants to make up for its budget deficit. It is even worse when these policies directly impact the citizens who, in this case, are the consumers of these sugary drinks. This policy will cause the drinks to be more expensive because the argument that it will discourage its consumption is unfounded, and it will badly affect businesses in that sector.
This is not what we need now. The government should leave people to make their choices and create an enabling business environment for businesses to thrive. This will translate to more money in Value Added Tax, and Company Income Tax.