On the 12th day of September, 2022, the Honourable Minister of Finance, Budget and National Planning, Zainab Shamsuna Ahmed issued the Excise Duty (Non-Alcoholic, Carbonated and Sweetened Beverages) Regulations, 2022 (hereinafter called "the Regulation"). The enactment is in line with the provisions of Section 120 of the Customs and Excise Management Act CAP 45, Laws of the Federation of Nigeria, 2004, (CEMA") which empowers the Minister to make regulations relating to manufacture of any goods under the CEMA.
According to the Honourable Minister, the purpose of the excise duty imposed on the non-alcoholic drinks and sweetened beverages at this time is to discourage excessive consumption of sugar in beverages which contributes to a number of health conditions including diabetes and obesity1. In addition, the duties are charged to raise revenues for health-related and other critical expenditures of government.
The regulation which takes immediate effect from 12th September, 2022 clarifies the administrative and enforcement issues on the excise duties chargeable on non-alcoholic drinks and sweetened beverages in Nigeria. Since its commencement, the regulation has elicited reactions from different sectors of the country about the rates, implementation, and its overall effect on the Nigerian economy considering the likelihood of increasing the financial burden on citizens.
FUNDAMENTAL THINGS TO KNOW ABOUT THE REGULATION
The Excise Duty (Non-Alcoholic, Carbonated and Sweetened Beverages) Regulations, 2022 comprises 10-head regulations including objective, charge to tax, goods included as non-alcoholic beverages, goods excluded as non-alcoholic beverages, persons liable to pay duty, chargeable periods and timing of dutiable consideration, obligations of manufacturers, miscellaneous, interpretation and citation. There are basic and fundamental provisions which every manufacturer of non-alcoholic drinks and sweetened beverages must know to avoid liability under the regulations.
OBJECTIVE OF THE REGULATION
The objective of the regulation is to provide for the implementation of excise duty on non-alcoholic, carbonated and sweetened beverages. It is important to note that Section 17 of the Finance Act, 2021 has expanded the scope of the CEMA to include a new category of manufactured goods subject to excise duty. As a result, Section 21(3) of the Customs and Excise (Consolidation) Tariffs Act (as amended) provides that non-alcoholic, carbonated and sweetened beverage, including beverage intended to be mixed into alcoholic drink or sold in powdered, solid (including capsules and tablets) or concentrated form for consumption after dilution shall be subject to excise duty.
1. CHARGEABLE GOODS AND EXCISE RATE
Generally speaking, an excise duty is chargeable only when goods manufactured within the country. However, under the current regulations, both non-alcoholic beverages that are manufactured in Nigeria and beverages imported into Nigeria are now subject to excise duty. This is a clear departure from the general principle of excise duty. Section 21(3) of Customs and Excise Tariffs (Consolidation) Act (as amended) pursuant to Finance Act 2021, the excise duty shall be charged at the rate of N10 per litre upon the manufacture of the non-alcoholic beverages in Nigeria. On the other hand, non-alcoholic beverages imported into Nigeria shall be chargeable upon the first occasion on which the beverages are delivered from Customs Control to a place of business in Nigeria. Goods that are packaged for resale as non-alcoholic beverage are also chargeable under non-alcoholic beverages manufactured in Nigeria.
2. SCOPE OF NON-ALCOHOLIC BEVERAGE
For the purpose of excise duty, Regulation 3(1) of the Excise Duty (Non-Alcoholic, Carbonated and Sweetened Beverages) Regulations, 2022 stipulates that non-alcoholic beverage includes beverage having Harmonised System (HS) Codes as listed in the Fifth Schedule of the Customs and Excise Management Act. The scope of non-alcoholic beverage under the regulation extends to any beverage containing edible caloric sweetener that is prepared by combining concentrate or other matter that is:2
- Diluted with water,
- Combined with crushed ice, or processed to create crushed ice,
- Combined with carbon dioxide, or
- Prepared by a process that involves any combination of the above processes.
Thus, examples of non-alcoholic beverage chargeable under the regulation include fruit juice, vegetable juice, aerated water, energy drink, malt, and any other beverage of an alcoholic strength not exceeding 0.5% volume. Suffices to say that alcoholic drinks though sweetened or contains sugar but which its alcoholic strength is above 0.5% are not chargeable under the current regulation regime. is3.
3. EXEMPTED NON-ALCOHOLIC DRINKS AND BEVERAGES FROM EXCISE DUTY
Furthermore, the regulation has excluded certain beverages from this excise duty. The exemption list includes:
- Beverage for medical use, excluding sports drinks or whatever description given to it such as energy drinks.
- Infant or baby formula for consumption of infants not more than 12 months old.
- Water, excluding flavoured and carbonated waters.
- Natural milk and milk products, provided that it contains at least 75% natural milk secreted by an animal.
- Drinks served in open container such as cocktails.
- Beverages medical food
- Beverages containing electrolyte solution used to prevent illness;
- Beverages used for another excisable goods stipulated in the 7th Schedule to the Act and manufactured by a person registered by the Nigerian Customs.
4. PERSONS CHARGEABLE UNDER THE REGULATION
Excise duty is generally payable by the manufacturer of the goods chargeable. Therefore, the N10/liter on the non-alcoholic drink and beverage is payable by person who manufactures. Now that non-alcoholic drinks and beverages imported into the country are subject to this excise duty, the importer of the beverage for sale in Nigeria is liable to pay the duty under the regulation4. In a situation whereby the manufacturer or importer of the non-alcoholic beverage is not resident in Nigeria, the person must appoint a fiscal representative in Nigeria for the purpose of paying the excise duty.
It is important to note that CEMA simply refers to the manufacturer as the person liable to pay excise duty. The question is who is a chargeable manufacturer of non-alcoholic drinks or sweetened beverages under the regulation? The regulation defines a chargeable manufacturer as a person who cans, bottles, packages or contracts another person to can, bottle, or package non-alcoholic beverage in a form that is suitable for consumption without further preparation. In the case of manufacturing by way of contract, the person on whose behalf the beverage is manufactured bears the burden of the excise duty.
5. FILING MONTHLY RETURNS AND COMPUTATION OF TIME
Just like any other form of indirect taxes, returns of remittances must be filed with the relevant tax authority within a prescribed period. Excise duty on chargeable non-alcoholic drinks and beverage is due monthly in arrears and payable on the 21st day of the month following the taxable period5. The taxable period means a 30-day period within which the excise duty on non-alcoholic beverage accrues. For example, the excise duty for non-alcoholic beverages manufactured in December 2022 shall be payable on 21st day of January, 2023. Where the 21st day falls on a weekend or public holiday, the excise duty shall be payable on a working day immediately following the expiration of the weekend or public holiday.
The regulation also compels chargeable manufacturers to file monthly returns on the manufacture of non-alcoholic beverages to the Nigeria Customs Service in a prescribed form as may be determined by the Comptroller-General. It is therefore safe to say that the authority that implements the provisions of this regulation is the Nigerian Customs Service. For imported non-alcoholic beverages, excise duty is payable upon the date the goods are released from Customs Control. The time is computed from the date when the goods were manufactured in Nigeria or in the case of imports, the date when the goods were cleared from Customs Control.
6. COMPLIANCE REQUIREMENTS
Manufacturers and importers of chargeable non-alcoholic drinks and sweetened beverages shall register with the Nigeria Customs Service not later than 30th June 2023. This requirement does not apply to persons who manufacture 5,000 litres or less of chargeable non-alcoholic beverages in a calendar year, as they are also not liable to pay the excise duty. However, a manufacturer shall register with the Nigeria Customs Service within 15 days from the date that its production is in excess of the 5,000 litres threshold in a calendar year.
The manufacturer of non-alcoholic drinks and sweetened beverages needs to know that he must file an inventory report of the production capacity between 31st May, 2022 and 30th June, 2022 with the Nigerian Customs Service. The manufacturer must also know that the production of non-alcoholic drinks or sweetened beverages in a 30-day period cannot be more than thirty times of its total value or volume calculated in that 12-month period. For clarity sake, if a manufacturer's monthly production is about 700,000 liters of sweetened drinks in the month of October 2022, its production for another 30-day period being November 2022 cannot be more than thirty times of value or volume calculated for that 12-month period
This enables the Customs Service to determine if a manufacturer is over producing or oversupplying sweetened or sugar related product, drinks or beverages more that it is permissible as provided in Regulation 8.
It is important to note that there are penalties for failure to register with the Nigeria Customs Service or pay the excise duty including fine as prescribed under Section 160 of the Customs and Excise Management Act i.e. payment of twice amount of the chargeable excise duty or sum of six-hundred naira whichever is greater. For ease of reference, the provision of Section 120(2) of CEMA is reproduced thus:
Any person contravening or failing to comply with any regulations made under this section shall be liable to a fine of four hundred naira and any goods or articles in respect of which the offence is committed shall be forfeited6
The regulation however is silent on the non-compliance with the oversupplying of sweetened beverages or non-alcoholic drinks in contravention of Regulation 8(2)(b). As stated earlier in this piece, the Minister derives the power to make the regulations from Section 120 of CEMA. This section provides penalty for any act of contravention of the regulations made pursuant to the exercise of such powers. Impliedly, this suggests that a manufacturer who violates the provision of Regulation 8(2)(b) risks a fine of four-hundred naira and forfeiture of the goods.
From the economic standpoint, originally, excise duty as a fiscal instrument is levied to discourage use and consumption of certain harmful goods, or services such as tobacco, narcotics, alcohol, etc. From the perspective of enhancing the health status of Nigerians and reducing the rate of diabetes-induced deaths, it is convenient to argue in favour of the Excise Duty (Non-Alcoholic, Carbonated and Sweetened Beverages) Regulations, 2022. However, one cannot ignore the ripple economic hardship such as inflation or price increase likely to be occasioned by the duty imposed on the items which the regulations seek to regulate.
Another interesting point to note is the scope of the regulations that seek to vary the main principle of excise duty which strictly is chargeable on goods manufactured within the country as opposed to widening its scope to imported non-alcoholic drinks and sweetened beverages into Nigeria.
1 Vanguard Newspaper "Stakeholders in health sector make case for sugar tax" published on 26th January, 2022 accessible virtually through the link: https://www.vanguardngr.com/2022/01/stakeholders-in-health-sector-make-case-for-sugar-tax
2 Regulation 3(2)(a) of the Excise Duty (Non-Alcoholic, Carbonated and Sweetened Beverages) Regulations, 2022.
3 Regulation 3(3) of the Excise Duty (Non-Alcoholic, Carbonated and Sweetened Beverages) Regulations, 2022.
4 Regulation 5 Ibid
5 Regulation 6 of the Excise Duty (Non-Alcoholic, Carbonated and Sweetened Beverages) Regulations, 2022.
6 By Section 120(1)(a – d) of CEMA, analyses the full powers of the Minister of Finance to make regulations and regulate manufacture of any goods other than beer, spirits tobacco and hydrocarbon oil.
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.