Tobacco has a high public health cost in Nigeria. More people are smoking, starting earlier and smoking for longer than ever. As a result, smoking-related diseases are growing. In addition to the public health costs, Nigeria under-taxes and under-regulates this industry compared to the west or other African countries. There’s a massive financial and public health benefit in better regulation of the tobacco industry, and we can get enough in taxes to manage the public health costs.
Nigeria charges lower taxes on tobacco, in part due to lower tax rates and how it charges taxes. In addition to import taxes, Nigeria charges tobacco taxes based on the value of the goods, different from the WHO-recommended tax on retail prices. Even without low rates, this tax structure is prone to under-valuation and encourages creation of lower-quality products.
Nigeria charges 20% of the UCA (unit cost) as taxes, down from 40% in 2009. This is much lower than the WHO-recommended 75% of retail price benchmark, and even lower than the 50% recommended by the Economic Community of West African States (ECOWAS).
What’s worse is that cigarettes have become more affordable in the past decade, when you adjust for income and affordability. This is unacceptable, and unique to Nigeria. If higher taxes are compelled to lead to higher prices, demand will drop. People will smoke less, and fewer people will die from smoking-related diseases.
Nigeria needs the revenues, and is in a position of strength to raise taxes. Both British American Tobacco (BAT), and Japan Tobacco International (JTI) have production facilities in Nigeria. BAT controls 80% of the Nigerian market, serving its West African market out of their Ibadan factory, and Nigeria continues to be one of the growth and profit drivers for BAT. This does not end with having the tax laws on the books. We also have a problem with collecting taxes for the laws we do have, and the abused but well-intentioned tax holidays for setting up factories.
The prize is high for getting it right. It’s a significant revenue opportunity with a payback period as short as a year, according to some estimates. In 2012, the Philippines “Sin Tax” law raised tobacco taxes which counter-intuitively increased revenues and reduced smoking prevalence. This increase in revenue allows the government to subsidize insurance for more of the population. In 1994, South Africa’s increased taxes raised government revenues 100% and dropped smoking rates 30% in a decade. Why not Nigeria?
This is not a knock on the tobacco industry, at least not for the taxes. It is reasonable to expect businesses to find ways to reduce their tax bill. These companies are huge employers of labour, they pay corporate income taxes and their export revenues are a valuable source of foreign exchange for the government. However, studies have not seen any evidence that higher tobacco taxes in countries like Nigeria will lead to job losses. Nigeria can get a “fair share” of this revenue to deal with the public health impact, and in line with other countries.
Taxation alone will not address the public health implications. We need to enforce restrictions on advertising, better notices on packets and other tobacco control measures. Some Nigerian states are seeking redress in the court system with court cases as far back as 2007. We need everything. Combined with higher taxes, Nigeria can increase revenues and reduce the negative public health impact of smoking.