Government can do better on Sugar Tax

It is true that some gains were made through implementation of the 2019 and 2020 finance acts. However, the excise duty of N10 per litre imposed on all non-alcoholic, carbonated and sweetened beverages in the Finance Act 2021, remains a source of concern. The government says the mechanism is aimed at discouraging excessive consumption of […]

It is true that some gains were made through implementation of the 2019 and 2020 finance acts. However, the excise duty of N10 per litre imposed on all non-alcoholic, carbonated and sweetened beverages in the Finance Act 2021, remains a source of concern.

The government says the mechanism is aimed at discouraging excessive consumption of sugar in beverages which contributes to diabetes, obesity and similar chronic ailments. The government also justified the new tax with the argument that it needs to raise excise duties and revenues for health-related and other critical expenditures. So, it is important to put both the mechanism and justification in context in appraising the rationality of this fiscal action, which in our view, seems half-baked and may need to be refined if the government sincerely seeks to address the pertinent issues of health.

Sugar tax, as legislated, is a sin tax, as often called, and Nigeria is not the first to introduce this levy. In fact, the World Health Organisation (WHO) is the frontrunner advocate of sugar tax, as it says about half of the world’s population is either overweight or obese due partly to high sugar intake. WHO, which cites empirical evidence that excessive sugar intake results in major direct and indirect economic losses for every country, prescribes maximum daily intake of 12 teaspoons of sugar for an average person, largely about the quantity of sugar found in an average 50cl carbonated soft drink. From the United States to the United Kingdom, Mexico, Portugal and Saudi Arabia, many countries have adopted Sugar tax in response to health issues, and not necessarily as a fiscal revenue booster. It was purely to improve health and overall welfare of their citizenry. While in the process, it has proven to be a source of revenue, that was and remains a secondary objective.

Hence, if the primary objective of the Sugar tax is to reduce the consumption of carbonated soft drinks and similar products with high sugar content, then the tax must serve to increase the price to a level that discourages the consumers and rein in the demand for the products. Incidentally, the products being targeted are proxy addictive, thus having a very low price elasticity of demand and suggesting that the tax must be high enough to spike the price to a level that consumers would be sensitive to. The N10 per litre translates to an average of three per cent increase in price, a likely impact that would be absorbed by the producers, especially given the highly fragmented and competitive structure of the industry.

Countries with success stories have shown that for Sugar tax to be effective in addressing targeted health issues, it must increase consumer prices on the products by at least 10 per cent, depending on the elasticity of demand for the products in such country. While the estimated impact on consumer prices in markets such as Chile and Mexico is put at about 15 per cent, the excise duty is as high as 50 per cent in markets like Saudi Arabia, UAE and Bahrain, where the sin tax represents over 20 per cent of prices consumers pay on the products.

Empirical evidence shows that if the goal is reduction of sugar consumption and improvement in health conditions of the people, then a tax based on sugar density of products is more likely to achieve the goal. So, why not consider taxing carbonated soft drinks and indeed other products with sugar density beyond a threshold rather than this seemingly subjective, one-brush-fits-all? In fact, such approach may help to change the behaviour of drink manufacturers to reduce sugar density of their products and serve the public healthier drinks.

So, the government may want to consider a tiered exercise duty approach that ensures only soft drinks with certain threshold of sugar density are taxed.

The Nigerian government also needs to provide facts on how much it has indeed spent on managing the citizens’ health issues relating to diabetes, obesity, among others.

The fact is that the government has either done nothing or obviously not done enough to show it cares for the people’s health, with barely 5.1 per cent budgetary allocation to the health sector in the 2022 budget in defiance to the African Union’s Abuja Declaration for all African countries to spend at least 15 per cent of their annual budget on healthcare.

To reduce the consumption of sugar and improve health outcomes, a comprehensive action plan that includes collaborative public education at all levels and across multiple channels needs to be diligently implemented, alongside restriction on advertisement and broader marketing of sugary products. This is important in ensuring the consumers understand the danger of excessive sugar intake.

We cannot stress it enough that the government must show true commitment by doing its part in showing facts to Nigerians on why the tax is relevant at this time.