Improving Nigeria’s health sector with carbonated drinks’ tax

In an effort to address the challenges facing Nigeria's health sector, coalition groups are urging the government to maximize the use of revenues generated from the excise duty imposed on carbonated drinks. The move is aimed at enhancing the country's health infrastructure and driving improvements in the well-being of Nigerian citizens. Damilola Akinbami, Head of Research at Financial Derivatives Company, shed light on the implications of the sugar tax and its potential impact on the economy during an interview on CNBC Africa. The government's decision to impose a specific tax of 10-hour on carbonated and non-alcoholic beverages is driven by the need to raise additional revenue for health projects and combat obesity. A key concern raised by Akinbami is the distribution of the tax burden between manufacturers and consumers in the highly competitive food and beverage industry. The price elasticity of these products plays a crucial role in determining whether manufacturers can pass on the tax to consumers, potentially making the drinks more unaffordable for Nigerians already experiencing low disposable income. While the implementation of the sugar tax is expected to boost government revenue, Akinbami cautioned that there are trade-offs to consider. She highlighted the possibility of manufacturers facing reduced production and downsizing due to the higher cost of production, which could lead to higher unemployment rates. This, in turn, may impact the government's tax revenue from these companies and necessitate a closer examination of the overall economic impact of the tax. Akinbami emphasized the importance of the government weighing the pros and cons of the sugar tax against the backdrop of Nigeria's fiscal deficit and economic challenges. With a deficit budget in place and the need to bridge the funding gap, the government must carefully evaluate the projected revenue gains from the tax and its potential long-term consequences on the economy. When asked about successful examples of countries implementing similar taxes, Akinbami mentioned South Africa as a case study. She emphasized the need for Nigeria to tailor its tax policies to its unique economic variables and to consider alternative revenue generation strategies that can mitigate the adverse effects on consumers and manufacturers. Akinbami stressed the importance of investing the proceeds from the sugar tax back into the economy to mitigate the impact on purchasing power and ensure that the desired outcomes are achieved. As Nigeria navigates its economic landscape and grapples with the complexities of taxation and revenue generation, the government faces a critical decision-making process in balancing the short-term gains from the sugar tax with the potential long-term repercussions on the economy and the well-being of its citizens.