The Federal Government of Nigeria ("FGN"), has approved changes to the rates and bases for levying excise duties on alcoholic beverages and tobacco. The new regime, communicated via the circular referenced 17642/II/172 and dated 6 March 2018 ("the Circular"), becomes effective from 4 June 2018 and the increase in taxes will be phased on a graduated scale from June 2018 to 2020.
The new excise duty regime for alcoholic and tobacco products (currently the only excisable products in Nigeria) shows a shift from ad-valorem to specific rate taxation for beer, stout, wines and spirits. Cigarettes and tobacco would still be taxed on an ad-valorem basis but would as well be subject to specific rates of duty.
Below is a summary of the new excise duty regime;
Description
|
HS Code |
Old regime
Ad valorem rate |
New regime | ||||
| Ad valorem rate | Specific rates | ||||||
| 2018 | 2019 | 2020 | |||||
| Cigarettes and tobacco | 20% | 20% | N1.00 per pack of
stick/ N20 per pack of 20 sticks |
N2.00 per pack of
stick/ N40 per pack of 20 sticks |
N2.90 per pack of
stick/ N58 per pack of 20 sticks |
||
| Beer and stout | 2203.00.10.00 and 2203.99.90.00 |
20% | – | N0.30 per centiliter | N0.35 per centiliter | N0.35 per centiliter | |
| Spirits and other alcoholic beverages | 2206.00.10.00 – 2209.00.90.00 |
20% | – | N1.50 per centiliter | N1.75 per centiliter | N2.00 per centiliter | |
| Wines | 2204.10.00.00 – 2205.90.00.00 |
20% | – | N1.25 per centiliter | N1.50 per centiliter | N1.50 per centiliter | |
The current change in the excise duty rates for tobacco and alcoholic beverages has long been mooted and is part of several anticipated changes to the excise duty regime.
Some drivers for these changes are:
- Revenue generation: Since the decline in non-oil revenues, the FGN has re-evaluated its approach as it now seeks to focus on taxation, with the aim of ensuring that taxation becomes a veritable tool for funding government expenditure. Generally, the new excise duty regime is expected to increase revenue generated from excise duties if consumption of locally manufactured tobacco and alcoholic beverages remains constant.
- Revenue leakages: There have been allegations of revenue leakages arising from the ad-valorem basis of collecting excise duties. Specifically, it has been alleged that under the current regime, valuation of excisable products have been subject to abuse, with the Nigeria Customs Service using their discretion in arriving at values for excise duty purposes. This practice leaves room for uncertainty in the industry.
- Control consumption: There is a growing narrative around the world for effective control of certain substances and the consumption thereof. Alcohol and tobacco are historically the most popular with some countries increasing the levies to further discourage consumption.
It remains to be seen how this move will impact the fortunes of industry players, who are already reeling from the challenges posed by the current economic landscape. It is expected that at the minimum, profit margins would reduce as manufacturers may not be able to pass the full impact of the increased duties to consumers. However, a question that begs to be answered is "would the new excise duty regime lead to a freeze on investments?"
This notwithstanding, current players must begin in earnest to evaluate the impact of these changes on their business, especially around systems and processes. There should especially be a robust strategy in place for the seamless switchover to the new excise duty regime, taking into consideration the need for effective compliance with the new regime.
We will keep monitoring developments in this space and provide updates as soon as they become available.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
