March 15, 2018
President Muhammadu Buhari has approved an increase in the excise rates on tobacco and alcoholic beverages effective 4 June 2018. The approval of the implementation of the new excise rates was communicated via circular: 17642/II/172 of 5 March 2018 which was issued by the Minister of Finance, Mrs. Kemi Adeosun. The revision introduces additional specific rates to the pre-existing ad-valorem rate for Tobacco (Cigarettes) and replaces the old ad-valorem rates for alcoholic beverages with specific excise rates.
The revised excise rates will apply to wines, spirits and other alcoholic beverages, tobacco (cigarettes) as well as beer and stout. However, the increase of the specific rates will be enforced incrementally over a three-year period (i.e. 2018, 2019 and 2020). The details of the change in rates are stated below:
Section 13 of the Customs, Excise Tariff, etc. (Consolidation) Act empowers the President of the Federal Republic of Nigeria to impose, vary or remove any import or excise duty based on a recommendation of the Tariff Review Board. Based on the Circular, manufacturers of the affected products have a 90-day grace period before the commencement of its implementation.
Besides the Federal Government’s drive for increment in revenue to finance the 2018 budget, taxation has also been proven to be a veritable tool for the control of consumption of the nature of products impacted by the Circular. Thus, the increase in excise duties may be one of the Federal Government’s policies to contribute to national health objectives given the globally accepted approach of reducing the consumption of Tobacco and similar substances through economic policies.
In addition, the move appears inevitable given Nigeria’s role in the Economic Community of West African States (ECOWAS) and the directive of its Council of Ministers on harmonization of ECOWAS member states’ legislation on excise duties.
Manufacturers of the affected products should take advantage of the grace period of 90 days to engage their consultants on the best methods to adopt to help cushion the impacts of the increase on cash-flow and profitability.
On the presumption of price fluctuations, the likelihood that manufacturers would shift the burden of higher taxes to their consumers through product price increase is unpredictable, given the potential impact on financial performance of companies in the sector. Furthermore, given that some of these affected products are addictive in nature, consumption patterns may not vary significantly with price increase in the long run. Thus, although one of the goals of the increase is to discourage consumption, the success of this social objective is not guaranteed. It is however expected that the Federal Government’s revenue from these products should surge as consumption patterns may remain constant.