The employment cost: Are 1.5m jobs worth 1,200% sugar tax hike?

The Nigerian economy currently faces a new fiscal policy debate that pits public health against economic stability.

At the heart of this controversy is the proposed amendment to the Customs and Excise Tariff (Consolidation) Act (CETA), which seeks to impose a substantial new tax on the Soft and Sugary Beverages (SSB) industry.

In recent weeks, the Senate organised a public hearing to hear and incorporate the views of diverse stakeholders on the proposed amendment, sponsored by Senator Ipalibo Harry Banigo, to hike excise duties on SSBs from N10 per litre to a staggering N130 per litre, or even 20 per cent of the retail price.

While the intention is to discourage excessive sugar consumption and generate revenue for health-related programmes, the potential consequences for employment, industry stability, and government income are far-reaching.

This proposed amendment risks unleashing economic devastation on an industry that employs 1.5 million Nigerians, many in local communities reliant on manufacturing jobs.

For context, the Nigerian SSB industry, comprising producers of soft drinks, juices and flavoured beverages, employs directly and indirectly over 1.5 million workers.

The figure of 1.5 million is not an exaggeration; it represents the sprawling ecosystem supported by this industry. It includes factory workers in the various bottling plants, but also the small-scale farmers who supply inputs, the vast network of distributors, transporters and, critically, the micro-retailers, the local mama-put stands, hawkers and neighbourhood kiosk owners, whose livelihoods are inextricably linked to selling these high-turnover consumer goods.

The overwhelming majority of these jobs are held by the local population, often providing the primary source of income for their families.

So, the potential economic fallout, particularly concerning the jobs tied to the SSB value chain, demands a sober and immediate reassessment.

A sudden tax hike of over 1,200 per cent, if the proposed CETA amendment passes and the punitive tax becomes law, risks shrinking demand, forcing companies to cut production, and inevitably leading to mass layoffs. SSB companies will have no choice but to pass on the tax burden to consumers, leading to an immediate drop in sales volume.

This is where the 1.5 million job figure begins to look less like a statistic and more like an impending national crisis. Job losses in this sector would not be confined to corporate offices or factories. Street hawkers, kiosk owners and small-scale retailers, often women and youth, would be disproportionately affected. Job losses in the manufacturing sector are often highly concentrated, capable of devastating entire communities built around a major industry.

Furthermore, the ripple effect on the upstream and downstream sectors, such as agriculture and logistics, will magnify the damage. In a country already grappling with high unemployment, the social consequences could be devastating.

Beyond jobs, the fiscal folly is glaring. Beverage companies, already burdened by inflation, naira volatility, import dependencies and rising energy costs, would face declining sales.

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Their reduced profitability could deter future investment not just in the SSB sector, but across the entire consumer goods manufacturing space in Nigeria. Why would a multinational or even a large local player inject billions of Naira into a country where the tax regime is prone to sudden, aggressive, and economically disruptive changes?

The economic risks do not end with private sector job losses; they also pose a significant threat to government revenue, which is ostensibly what any tax is meant to boost. SSB companies pour billions into taxes and levies, bolstering federal and state coffers. The non-alcoholic drinks sector is no minor player; it anchors backward integration under the Nigeria Sugar Master Plan II, contributing 40-45 per cent of gross tax revenues from manufacturers.

However, private sector groups like the Organised Private Sector of Nigeria (OPSN) and the Manufacturers Association of Nigeria (MAN) have sounded the alarm during the Senate hearing, warning that such a levy, if approved, amid thin margins and macroeconomic headwinds, could cripple production lines and trigger mass layoffs.

Domestic sugar output already plunged 35 per cent in 2023 following earlier tax pressures, with sugar consumption dropping 16 per cent, eroding jobs in farming, refining, transport and retail.

So, while the tax is expected to raise funds, the reality is more complex. If consumption plummets and companies’ revenues shrink due to reduced demand, their corporate tax contribution, a vital stream of government income, will simultaneously diminish.

A shrinking industry means lower corporate income tax, lower value-added tax (VAT), lower excise collections, and fewer pay-as-you-earn (PAYE) contributions. The government risks losing more than it gains, as, in a perverse twist of economic fate, it could end up collecting less total revenue while simultaneously inflicting profound harm on its largest private-sector employers.

In addressing this complex issue, we must be intellectually honest. While supporters of the proposed amendment, including the Ministry of Health, argue that higher taxes align with global best practices in reducing sugar consumption, the Nigerian context is unique.

Unlike wealthier nations, Nigeria’s informal economy is vast, and its social safety nets are weak. A policy that jeopardises millions of jobs, both in the formal and informal sectors, without adequate alternatives risks worsening poverty rather than improving health outcomes.

Moreover, the assumption that higher prices will automatically reduce consumption may not hold. Consumers may shift to cheaper, unregulated alternatives, undermining both health and revenue goals. Furthermore, the SSB industry is already heavily regulated and taxed. Therefore, hiking the excise duty now, especially in the context of the current high inflationary environment, acts as a twofold blow for the average Nigerian consumer, hitting both their disposable income and their job security.

So, the question, therefore, is not whether Nigeria should address rising health concerns linked to sugary drinks, but how. The critical question is: Is there a less economically perilous path to achieving the public health objective? Alternatives such as earmarking a portion of the existing Excise Tax for health infrastructure, implementing measures to improve tax compliance, and reducing corruption and ensuring accountability and transparency with the current excise tax remitted offer targeted interventions without the nuclear option of wholesale job destruction.

In addition, policymakers, aside from seeking the views of health experts, should also consult manufacturers, retailers and labour unions to design measures that protect jobs while promoting health. The government can and should encourage beverage companies to innovate healthier alternatives, creating new markets without destroying existing ones.

The Customs and Excise Tariff (Consolidation) Act Amendment proposal, in its current form, is a high-stakes gamble. The economic evidence suggests that the potential short-term revenue gains and long-term, unproven health benefits are vastly outweighed by the near-certainty of widespread job losses, erosion of tax bases, and a chilling effect on investment. Nigeria needs solutions that balance health priorities with economic realities. The livelihoods of 1.5 million Nigerians and the stability of the wider economy hang in the balance.