World Bank: Nigeria can earn N600bn from tobacco, alcohol tax increase

The World Bank says Nigeria can generate more than N600 billion annually by increasing excise duties on tobacco and alcohol as recommended in its Nigeria development update (NDU) report.

Rajul Awasthi, a senior tax specialist at the World Bank, said this during a virtual summit on domestic revenue mobilisation on Thursday.

According to the NDU report, excise duties can boost tax revenue by up to one percent of gross domestic product (GDP).

“On alcohol and tobacco, Nigeria applies an ad valorem rate of 20 percent, which is less than half the median of its African peers,” the report reads.

“To effectively tap into this revenue source, Nigeria could retain the current ad valorem excises but augment them with specific ones.

“World Bank estimates show that retaining the current rates and gradually increasing the specific duty component to achieve tax incidence consistent with regional peers will generate additional revenue of N955 billion in the first year.”

Speaking at the summit, Awasthi said Nigeria has one of the lowest excise duty rates on tobacco and alcohol in Africa, and the duty rate on cigarettes is lower than the standard set by the Economic Community of West African States (ECOWAS).

“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 revenue significantly,” Awasthi said.

“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.”

The World Bank further advised the federal government to embrace tax policies that do not endanger investments, jobs or the growth of the economy.