July 10, 2018
Over the last few years, the Nigerian Government has increasingly focused on non-oil taxes as a source of revenue majorly due to the sustained drop in oil prices between 2015 and 2017. In 2017, the Federal Government (FG) formally unveiled its Economic Recovery and Growth Plan (ERGP) for 2017 to 2020. The document sets out several initiatives that will lead to sustained and inclusive growth for the Nigerian economy.
One major focus area of the ERGP is to improve FG’s revenues by targeting non-oil revenue sources and ultimately increase tax to GDP ratio from the current 6 per cent to 15 per cent during the period. To achieve this particular milestone, the ERGP has indicated that Government will improve tax compliance, broaden the tax net, by employing appropriate technology, and tighten the tax code; as well as introduce tax on luxury items and other indirect taxes to capture a greater share of the non-formal economy.
It is in furtherance of these objectives that the Federal Government through Circular: 17642/II/172 of 5th March 2018 announced an increase in the excise rates on tobacco and alcoholic beverages with effect from 4th June 2018. The revision introduced a specific excise rate for alcoholic beverages and tobacco products. In the case of alcoholic products, specific excise rate replaces the existing ad valorem rates, while in the case of tobacco, specific excise is to be imposed in addition to the existing ad valorem excise.
This article will examine the underlying reasons for the change in the excise regime from ad valorem to specific, the process adopted and the possible tax implications of the changes.
Section 21 of the Customs, Excise Tariff etc. (Consolidation) Act (CETA), provides for the imposition of excise on goods manufactured in Nigeria. A 20% ad valorem rate is imposed on alcoholic drinks (beer, stout, wines and spirits) and tobacco products.
The basis for computing the applicable excise on each product is either:
(a) the manufacturer’s price;
(b) the distributor’s wholesale price, where the manufacturer is a distributor or where the manufacturer and the distributor are associated companies; or
(c) the retail price, where the associated company or the manufacturer sells retail; or
(d) where dissatisfied with the price declared, a price which in the opinion of the Nigerian Customs Service (NCS) is equal to the cost of manufacture plus profit.