Executive summary

The Federal Government of Nigeria (the Government) recently approved an increase in the excise duty on alcoholic beverages and tobacco effective 4 June 2018. The increase was approved based on the recommendation of the Tariff Technical Committee of the Federal Ministry of Finance and it is expected to be phased in over a three-year period from the year 2018 to 2020.

Detailed discussion

In a recent publication (the Publication), the Government approved the increase of the excise duty on alcoholic beverages and tobacco, effective 4 June 2018, following the recommendation by the Tariff Technical Committee of the Federal Ministry of Finance.

The increase is in accordance with Section 13(1)(a) of the Customs, Excise Tariff etc. (Consolidation) Act, which gives the President the authority on the recommendation of the Tariff Review Board to, by order, impose, vary or remove any import or excise duty.

In the Publication, the Minister of Finance announced that the new excise duty rates would be phased in over a three-year period from 2018 to 2020. The spread is to manage the effect on the prices of the affected products.

For tobacco products, the new excise duty regime is a combination of the existing ad valorem base rate and a specific rate while for alcoholic beverages, the ad valorem rate has been replaced with a specific rate. The revised excise duty rates as indicated in the Publication are reflected below:

• In addition to the 20% ad valorem rate, each cigarette stick will attract an NGN¹ (N)1 (N20 per pack of 20 sticks) in 2018, N2 specific rate per stick (N40 per pack of 20 sticks) in 2019 and N2.90k specific rate per stick (N58 per pack of 20 sticks) in 2020
• Beer & Stout would attract N0.30k per centiliter (Cl) in 2018 and N0.35k per Cl each in 2019 and 2020
• Wine will attract N1.25k per Cl in 2018 and N1.50k per Cl each in 2019 and 2020, while Spirits will attract N1.50k per Cl in 2018, N1.75k per Cl in 2019 and N2.00k per Cl in 2020

The review which led to the increase in excise duty was recommended in a bid to increase government revenue and reduce related health hazards associated with tobacco and alcohol abuse. The increase is also intended to align Nigeria's excised duty with the laws of the other Member States of the Economic Community of West African States.

Implications

The Government is actively seeking ways to generate revenue and also diversify its income stream with the action of increasing the duty imposed on certain products. Consumers of these products should expect an increase in their cost, albeit in phases with the full impact occurring in 2019.

Taxpayers operating in the affected sectors should review the changes, assess the impact on their operations and put in place measures to mitigate any adverse impact.

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ENDNOTE

¹ Nigerian Naira – symbol N.

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CONTACTS

For additional information with respect to this Alert, please contact the following:

Ernst & Young Nigeria, Lagos

• Abass Adeniji
  abass.adeniji@ng.ey.com
• Akinbiyi Abudu
  akinbiyi.abudu@ng.ey.com
• Temitope Samagbeyi
  temitope.samagbeyi@ng.ey.com
• Chinyere Ike
  chinyere.ike@ng.ey.com
• Oluwatumininu Familusi
  oluwatumininu.familusi@ng.ey.com

Ernst & Young LLP (United Kingdom), Pan African Tax Desk, London

• Rendani Neluvhalani
  rendani.mabel.neluvhalani@uk.ey.com
• Byron Thomas
  bthomas4@uk.ey.com

Ernst & Young LLP, Pan African Tax Desk, New York

• Silke Mattern
  silke.mattern@ey.com
• Dele A. Olaogun
  dele.olaogun@ey.com
• Jacob Shipalane
  jacob.shipalane1@ey.com

Ernst & Young LLP, Pan African Tax Desk, Houston

• Elvis Ngwa
  elvis.ngwa@ey.com

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ATTACHMENT

PDF version of this Tax Alert