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On Tobacco, Its Two Step Progress

June has turned out the month of double celebration. With fears about possible job losses already sufficiently debunked by economic experts, the much talked –about upward review of excise duty on tobacco and alcohol kicked off Monday 4, June 2018. Minister of Finance, Dr. Kemi Adeosun had said the government envisaged that the new rates, which will be spread over a three-year period, will raise revenue and reduce the health hazards from tobacco-related diseases and alcohol abuse.

Another feat achieved Wednesday June 13 was the Federal Executive Council’s (FEC) approval of regulations for effective implementation of the National Tobacco Control (NTC) Act. The approval had been long in coming but its timing is perfect.

New excise duty on tobacco
Under the new policy, in addition to the 20 per cent ad valorem rate, each stick of cigarette will attract N1 specific rate (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.
With the implementation of the new excise duty regime Nigeria’s cumulative specific excise duty rate for tobacco, is now 23.2 per cent of the price of the most sold brand, but still lower than Algeria, South Africa and The Gambia, which have 38.14 per cent, 36.52 per cent and 30 per cent respectively.

Since the pre-announcement of the new policy in March 2018 the tobacco lobby had been at daggers drawn with the government. The attacks on the policy hammered on the loss of jobs by 25,000 persons and this was later reviewed to 250,000. Then there was the gloomy prediction that some businesses will shutdown and the economy would be thrown back into recession. There was no bad forecast that Nigerians did not hear in relation to the policy. Econ0mists did their work and burst the job loss bubble. In one of such report by the Center for the Study of the Economies of Africa (CSEA) said that higher tax level is unlikely to significantly affect productivity and employment in tobacco firms, since they can pass on the burden of tax to consumers and still maintain their market share and profitability.

The center said that the new tax increase is relatively small as an additional ₦2.90 per stick spread across three years will allow the firms to adjust and that their market power, supernormal profits, economies of scale, and the gradual policy implementation will ensure little or no negative impact on productivity, hence they are unlikely to shut down. For those involved in some form of incidental employment, for instance tobacco farmers, it said since most of them practice mixed farming they can easily shift to alternative crops.

Jubilation on the final kick-off of the policy by the public health community should however not overshadow the fact that the tobacco lobby may again spin some new arguments that will further throw works in the spanner.
Except for the resoluteness of the Ministry of Finance, the new excise duty policy would not have taken off. The controversial job loss claim of the Manufacturers Association of Nigeria (MAN) and other allied groups before the June 4 commencement of the policy brings to mind a similar scenario in 2005 when Nigeria started working on implementing the World Health Organisation -Framework Convention on Tobacco Control (WHO-FCTC).

At the time, notable tobacco behemoths such as British America Tobacco Nigeria (BATN) had championed the cause for deflection of the implementation of the treaty in the country with the same job loss scare tactics and a bogus claim that tobacco entities in the country would shut down under a WHO-FCTC regime. It took a tortuous 10 years and doggedness on the part of civil society groups and officials of the health ministry for the treaty to be domesticated in the National Tobacco Control (NTC) Act. But at every point along the way, misinformation had been a tool of the pro-tobacco lobby.

With the gloom and doom about job loss seemingly behind us now, the importance of embarking on massive sensitisation of Nigerians on benefits of the new policy must continue. For one, it is anticipated that the hiked prices of tobacco products will soon start reflecting in some marked drop in the patrons of tobacco products. Patrons of tobacco products will also reallocate funds spent on tobacco on some other more profitable products. This will ultimately translate to fewer Nigerians dying from heart attack, reduced premature aging and other cardiac complications caused by tobacco.

Is it safe to conclude that Nigeria got this one right? Only time will tell.

Nsikan Ekanem is an analyst based in Uyo

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