World Bank advises Nigeria to raise excise duty on tobacco and alcohol in bid to raise $1.5bn

NIGERIA has been advised by the World Bank to cash in on its growing tobacco and alcohol markets by generating as much as N600bn ($1.45bn) a year by increasing the excise duties on both products as recommended in a National Development Update report.

Faced with dwindling revenue as a result of the reduction in the purchase of petroleum products, Nigeria has to look for new sources of income. Increasing duties on luxury and consumer products is seen as a major money spinner for the government and a recent National Development Update report recommended this.

Rajul Awasthi, a senior tax specialist at the World Bank, said Nigeria has one of the lowest excise duty rates on tobacco and alcohol in Africa. Speaking during a discussion on domestic revenue mobilisation, he added that the duty rate on cigarettes is lower than the standard set by the Economic Community of West African States (Ecowas).

Mr Awasthi advised the federal government to either adopt the excise standards for tobacco and alcohol recommended by Ecowas or emulate the Kenyan model to boost the country’s revenue from tax. He said this kind of tax increase would not impact the majority of the population or low income-earners but would improve the ease of tax compliance monitoring.

“On excise, what we see is that Nigeria has one of the lowest excise rates on alcohol and cigarettes and on cigarettes, they are even lower on the Ecowas target. So, if Nigeria were to adopt the same rate of excise duty that Kenya has adopted, they can raise a significant amount of revenue.

"Similarly, if they are to adopt Ecowas, a standard, that will also raise the revue significantly. What is more important is that these two sources will not impinge on consumption growth, so taxing them is actually good from the health perspective.

“Excises on tobacco and alcohol do not impact the vast majority of people and compliance can be monitored much more easily by the compliance agencies. If the measures outlined in our report are implemented, these excise duties on tobacco and alcohol can raise more than N600bn a year,” Mr Awasthi added.