N10/litre duty: Carbonated drinks manufacturers tackle customs, threaten shutdown

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Firms, under the aegis of the Nigerian Association of Small & Medium Enterprises, have accused the Nigerian Customs Service of extortion while implementing the recently introduced N10/litre excise duty on carbonated drinks.

The MSMEs, who are in the production of carbonated drinks, alleged that it would cost a single operator N4.8m every year to complete the registration process and also comply with other mandatory charges imposed by the Nigeria Customs Service.

While speaking exclusively , the immediate past president of the Nigeria Association of Small Scale Industrialists, Segun Kuti-George, faulted the decision of the Federal Government to impose the N10/litre tax on carbonated drinks for manufacturers across board.

According to him, while the large-scale industries might be able to survive the consequences of the excise charge, virtually all MSMEs in the production of carbonated drinks would go out of business under the current excise regime and the demands being levelled by the Nigeria Customs Service.

Kuti-George said, “It is going to cost a small business an additional N4.8 million naira every year. That is an additional cost apart from the N10 and I will explain to you. The Customs people are now saying that they will attach a Customs officer to you. In fact, they have already attached themselves to every small business.

“You register with Customs with N2m. You will provide an office for the Customs guy that is attached to you. You will provide accommodation, room and sitting room with a toilet and a kitchen for the Customs official. That is N1.2 million per annum. You provide furniture and fitting for the rooms, estimated at about N1 million. Transport and feeding cost N1500 per day for 26 days in a month, that is N468,000 per annum.

“Then, you will sign a N220,000 bond with the Nigeria Customs, which costs nearly N5 million. If they sustain that thing for the next two months, you won’t find any micro business in production of sweetened items again.

“When my men were complaining to me, I was like, were they employing new people for you? Were they not working before? Are they not collecting salaries at their base where they are working? So, when we factor all these together, we are looking at N4.8 million in a year. My people don’t have the financial capacity.”

An MSME operator directly affected by the development, Peter Popoola, while speaking with our correspondent, said many micro-scale businesses were already shutting down due to the skyrocketing costs of the factors of production.

Popoola appealed to the Federal Government to intervene on behalf of MSMEs by way of initiating schemes that would help cushion the impact of the austere operating environment.

He said, “Our complaint is that you can’t give a flat rate for both small and multinational companies to pay. So, a small enterprise that is producing fruit flavored drinks with about five tanks or ten will pay the same as a multinational firm? You are telling them to pay the same amount as large enterprises.

“The economic climate presently does not favour small-scale businesses. Many of us are closing shop every day. So, what we need now is to help sustain those in our employment. Every month, we keep on retrenching workers, sending them to the already saturated labour market. So, this added tax now is burdensome.

The costs of all factors of production are very high; They are becoming unreachable for small scale. Diesel is about N800 naira now, and none of us can power our factories with diesel generators any longer.

“The prices of all other factors and materials are going up every day. So, we are going out of business systematically. At this point, we need the help of the Federal Government to give us money to sustain. But now, the profits of the businesses have been eroded by inflation and we are having just very small margins. It is on these small margins that you want to put another tax upon us. So, if they want to collect the money, let them collect the money from those big companies who have all the latitude to raise money and to sell at any comfortable price.”

He also noted that while the large-scale producers had increased the prices of their products to maintain profit margins, the lack of visibility of MSMEs had prevented them from taking such bold decisions to stay in business.

He further said that the smaller businesses “do not have the financial ability to take in more tax.”

On the terms and conditions imposed by the Nigerian Customs Service, he described them as outrageous, noting that charges were high.

He appealed to relevant authorities to wade into the matter as it would ultimately occasion the demise of MSMEs which were in the production of sweetened drinks.

“We do not have such money and that is why we are appealing to them that they should understand,” Popoola said.

The National Vice-Chairman of the Nigerian Association of Small & Medium Enterprises, Mr Solomon Aderoju, who also spoke with The PUNCH, said MSMEs were already contending with a barrage of difficulties such as energy costs, inflation rate, high borrowing rates, among others.

He said, “The operating environment is chaotic already. So, if you say that our people should pay an additional N10 and also take care of the Customs officer, it is an additional cost and it will not augur well for us.”

The Nigerian MSME ecosystem

In August 2016, the Manufacturers Association of Nigeria and the NOI Polls reported that 222 small-scale businesses closed shops, leading to 180,000 job losses.

Another report released by the National Bureau of Statistics and the Small and Medium Enterprises Development Agency in 2019 said the number of the micro, small and medium businesses which shut down between 2013 and 2017 was 2,877.

According to the report, “The number of medium-sized enterprises decreased significantly from 4,670 in 2013 to 1,793 in 2017, indicating a 61 percent drop,” the report had said.

The report further said that the number of MSMEs when viewed as a group grew from 37million in 2013 to 41.5million in 2017.

However, micro enterprises were responsible for this growth, with the number hitting 41.469 million (99.8 percent). The number of small enterprises was estimated at 71,288 (0.2 percent), while medium-scale businesses were only 1,793 (0.004 percent) from 4,670 before 2013.

But things have changed since the report was released.

In a recent report, SMEDAN said the number of MSMEs in the country dropped by about two million between 2017 and 2021.

It said the country’s MSMEs reduced from about 41 million in 2017 to 39 million in 2021, noting that this was due to the impact of COVID-19 and other challenges on small businesses nationwide.

The Director-General, SMEDAN, Dikko Radda, disclosed this at an event organised by the Transparency Advocacy for Development Initiative in collaboration with SMEDAN in Abuja.

He said, “According to the 2021 MSME Survey, there are 39 million MSMEs in Nigeria. This is a significant drop from 41 million MSMEs reported in the 2017 survey report.

“The major reason for the drop in the number of MSMEs could be traced to the COVID-19 pandemic, the challenges MSMEs have in accessing funds to start or grow their enterprise and the problems of globalisation.”

Radda, who was represented by the Director, Planning, Research, Monitoring and Evaluation, SMEDAN, Wale Fasanya, said both the public and private sectors had roles to play in the sustainable development of MSMEs in Nigeria.

He also noted that the contribution of MSMEs to Nigeria’s Gross Domestic Product dropped by 3.5 per cent in 2021, adding that MSMEs accounted for 6.2 per cent of external trade in the same year.

MSMEs are hard hit by multiple taxation and poor access to credit. Even some of the intervention funds are sitting in the banks and unable to be accessed by MSMEs, according to the players.

They also suffer from policy flip flops and duplication of regulatory responsibilities.

Customs respond

In his response, the National Public Relations Officer of the Nigeria Customs Service, Timi Bomodi, said that part of the requirements for the licensing by the Service was that a factory would provide an office space for officers. He said all factories under the license of NCS should provide good offices for officers of the Customs.

“First of all, for any tax that is brought under excise control, as in this case for factories that produce either shipping or carbonated drinks by extant laws, are currently under the excise control.

“It means that once they are under the excise control, they are issued licenses by the NCS. And part of the requirements for the licenses is that the factory owners should have good offices for the officers to work.

“It is part of the requirements that within their factory, they should create an environment for the officers to work. Remember the officers are there to monitor the production as it takes place and production occurs 24 hours a day and you need to have comfortable places for these officers to stay so that they can do their jobs.

“That is part of the requirements; it is not a levy. All excise factories that are under the license by NCS are obligated to provide befitting offices for officers to do their jobs.

“Secondly, the 10 per cent is what the government says they should pay and it is not 10 per cent of their total value. It is actually a very small amount. The Federal Government, in its wisdom, took into consideration a lot of things. That 10 per cent is the lowest being paid within Africa for the production of carbonated or sugary drinks considering the fact that for many years these factories never paid any form of excise tax.

“The officers who are going to do their jobs are not imposing anything on these factories. That is beyond what the law says they should do.”

On the issue of accommodation, Bomodi said, “That is not true. What they are talking about is the office accommodation. Why should they rent a living room and a sitting room for them? What is their business in renting accommodation for them? It is not true. What they are talking about is the office accommodation in the factory that should be well furnished.”

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