Manufacturers yesterday lamented the challenges facing them and called on the Federal Government to suspend the 2023 Fiscal Policy Measures (FPM).
They warned that failure to do so could force many of them to shut down, thereby driving up the already bad unemployment rate in the country and reducing Federal Government’s revenue.
FPM is a set of tools designed by the Federal Government to foster economic growth by expanding investment in the public and private sectors and diversifying resources from less desirable investments to more desirable ones.
One of the major components of the policy is an increase in excise duty on some products.
The manufacturers who are under the aegis of the Manufacturers Association of Nigeria (MAN), specifically made reference to the plan to hike excise duty, saying it would have a domino effect on manufacturing and their revenue.
They listed naira scarcity, foreign exchange (forex) scarcity and high energy costs as some of the challenges they were already contending with.
Their worry is contained in a statement by MAN’s Director-General, Segun Ajayi-Kadir.
The statement reads: “These extraordinary challenges have significantly impacted the industry. For instance, the brewing sector suffered a massive decline of -169per cent in profit before tax in Q1 2023.
”Also, the industry turnover for non-alcoholic beverages and tobacco declined by -15 per cent, while gross profit and profit before tax declined by -31 per cent and -96per cent within the same period, respectively.
“The Naira scarcity and limited access to foreign exchange have exacerbated the continuing impact of systemic challenges, such as high cost of operations, a multiplicity of taxes, limited electric power supply and infrastructural challenges.
“For instance, the Nigerian manufacturing sector recorded a 36 per cent downturn in profit margins from 2021 to 2022 and over 400 per cent increase in energy costs, further constraining the growth of the sector.
“Data from the National Bureau of Statistics (NBS) showed that inflow of foreign direct investment (FDI) into Nigeria fell by 33 per cent in 2022.” This is not the time to impose additional increases in excise duty.”
MAN described the rate of increase as exponential and not consistent with best global practices For instance, the excise for beer was increased by about 200 per cent.
It warned that significantly diminished sales volumes will lead to business restructuring and a reduction in investment across the impacted sectors.
“The manufacturing sector has been struggling with crashing sales, mainly attributable to the sustained naira scarcity. A continuing decline in sale volumes will necessitate production cuts and a reevaluation of investments in the sector. Specifically, if sales proceeds can no longer sustain business overheads and operating expenses, businesses will be forced to scale down their operations which would result in factory closures, job losses, a decline in exports and much more. Data from the National Bureau of Statistics (NBS) showed that the inflow of foreign direct investment (FDI) into Nigeria fell by 33 per cent in 2022, while the unemployment rate stands at 33.3per cent and rising. These indices will worsen if the increase in the 2023 Fiscal Policy Measure is applied,” MAN further warned.
According to the group, the inevitable decline in profitability in the industry will lead to a decline in government revenues.
It stated that the total excise derivable from the excisable sector is insignificant when compared to Nigeria’s revenue needs.
“The decline in sales and profitability of the industry will result in a decline in the industry’s total tax contribution to the government, because companies’ income tax (CIT), Value added tax (VAT) and education tax are directly tied to the performance and profitability of the companies.
“Further, over-taxing regulated products will nudge consumers towards cheaper, illicit products which will lead to further loss in revenue to governments, in addition to endangering consumers,” MAN said.
MAN added the sectors’ value chain would l be severely impacted because industries that support other businesses within their value chain, cutting across agriculture, logistics, bottling, labelling and packaging businesses, as well as distribution, wholesale and retail businesses, catering for over 950,000 direct and indirect employees.
“For instance, over 37,000 sorghum farmers rely on the brewing sector for their livelihood. A crash in sale volumes and consequent cuts in production will severely impact these businesses in the value chain, which will have a multiplier effect on the national economy. For instance, transactions with suppliers in the sector declined by over N260 billion by the end of 2022, when compared to 2021,” it said.
The association also maintained that retaining the 2023 FPM would have a negative signalling effect on current and prospective investors.
The body also raised concerns with the Single Use Plastics Tax which it said lacked a basis in law as it was not provided for under the Customs, Excise, Tariff, and Others (Consolidation) Act (CETA), unlike beverages and tobacco.