EXCISE TAXATION IN NIGERIA By Moses Olufemi Adewumi Thesis in &Part fulfilment o f the requirements fo r the M .Sc. Degree in Economics University of Ibadan. 1970. A C K N O W L E D G E M E N T S Excise taxation is an aspect of Nigeria's mode * r \ taxation which has remained largely neglected in academic circles in spile of its importance as the second largest source of Federal Government revenue, and its usefulness as instrument of Economic Policy. N / This study is primarily intended to examine the use to which excise taxation has been put in Nigeria and how effec­ tively it could be said to have performed the task. The work cannot be said to have exhausted all that has to be known about Nigeria's excise taxation - in fact no such claim is made - bu t it i s hoped it would furnish a good in­ sight into this mode of taxation in Nigeria and provide a useful base urther study* The $£(|blems of a private researcher are too well known . *- « fci'SsIpiscious and unco-operative respondents, and diffi- culties of getting at vital official records. These problems are particularly serious when it has to do with the touchy topic of ,tax,c It is in the light of these that we are particularly grateful t_ o: The. Management* of the Nigerian Tobacco Comp­ any Ltd.; the Management of the West African Portland Ce­ ment Co. Ltd.; Messrs C. 0. Ibie of the Federal Ministry of Finance; K. Akpanah, Chief Collector of Excise, Apapa; F. E. Imokhai; A. Akinyele; and Anene, all of the Department of Customs and Excise; and the entire staff of the Head­ quarters office of the Department of Customs and Excise for the valuable assistance they have rendered. In addition, our unreserved gratitude goes to Professor 0. Aboyade, Head of Department of Economics, University of Ibadan, for his advice and help^Agitp the * early stages of the field work. Special thanks to Dr. A. 0. Phillips of the Department of Economi^^ University^ of Ibadan, who has supervised this work at every stage, for his lively interest, intelligent directiioon, ►!sympathetic understanding of problems and invaluable advice throughout. Finally, our gratitude also goes to the Western ‘Nigerian Government whose scholar­ ship award0 1 made this research possible. M. Olufemi Adewumi. January, 1970. ii TABLE OP CONTENTS CHAPTER PAGE ACKNOWLEDGMENTS........................ i TABLE OF CONTENTS....................... iii LIST OF TABLES....................... LIST OF CHARTS ___ ............. ix SYNOPSIS ............... .....& * 1. INTRODUCTION........................... 1 Government Revenue Structure in Nigeria ............................ 3 Aim, Objectives and Scope of Dissertationj C...h.F................... 8 Sources S .................... .... 10 2. EVOLUTION............................. 13 Stages in the Development of Excise Taxation in Nigeria ................. 13 (a) Introducing Another Type of Tax ... 14 (b) Renewed Thinking aboutE xcise..... 21+ (c) Emergence into Prominence ........ 33 Expansion of Coverage ...... 37 Changes in Rates Structure Cigarettes ......................... 1+2 Beer ............ 49 iii CHAPTER PACE Matches ...................... 49 Specific levies (excluding levies on Beer and Matches............. 53 Ad valorem levies ... ................ A 58 Summary ................................. 62 3. ADMINISTRATION.....................<...?..r. 64 (1) Certainty ............ .......... . 65 What and When to Pay 66 Who to p a y .................. 68 Adequacy of knowledge of the tax ..... 69 (2) Administrative Organization.......... 70 The Structure and Deployment of Technical Personnel............... 73 Control Strategy................... 80 5 Problems of Evasion and Avoidance......... 82 ' (î Resentment................. 82 (ii) Loopholes for Evasion and Avoidance v V ^ (1) Rate Structure............... 85 (2) The Working of the Admini­ strative Set-up............ 88 (a) The Control System...... 88 (b) Administrative Conditions for Licencing.......... 97 Summary and Conclusions................ 101 iv CHAPTER PAGE 4. POLICY AND PERFORMANCE 104 I. Issues of theory.................... 104 Modes of Levy........................ 118 Tariff protection and Excise Duties .... 121 Effects of Changes in Income ..... • • * • • 132 « Manufacturers' Excise Tax and Prices .................... ......... 124 Retail Price Based Excise Duty ......... 127 Summary of Policy iptions ........ 128 II. Policy Objectives .................... 129 . (a ) Revenue Objectives . ....... 129 (l) Supplementary Role......... 130 (2) * Cm o*mpensating Role ........... 132 (B) Economic Development and Control- Objectives ............ 143 w Excise as a tool for Stimulating Economic Development ......... 150 1 Savings ....... 150 Influencing the Pattern of Private Investment ............ 152 Encouraging the use of Locally produced inputs...... 153 v CHAPTER PAGE Excise as a Tool of Inflationary Control ............. 157 5. .REVENUE PERFORMANCE 1 Relative Contributions to Excise Revenue 171 Motor Spirits and Diesel Oil...............173 Cigarettes ........ 178 Changes in rates ...........<..?.v........ 178 . Effects of Rates Change^on Revenue ..... 180Beer .......... ........,.1.-...̂........ ....... 1856 SUMMARY AND CONCLUS APPENDIX ...I.ONS*-. ____............... 196205 BIBLIOGRAPHY.............................. 210 vi LIST OF TABLES NUM.BE.R TITLE PAGE1.1. Federal Government Revenue from Major Sources 4(for Years Ending 31st March, 1957 to 1968) .... 42 1 Changes in Excisable Commodities ............. 38 2.2. Changes in Levies on Cigarettes ., ........ L < P 3 2.3. Changes in Excise Levies on Beer..... ■..... 50 2.4. Changes in Excise Levies on Matches .. ..... .... 51 2.5. Specific Levies Excluding Levies on^ ►­ Beer and Matches............. ............ .. 54 2.6. Ad valorem Levies Excluding Levy on Cigarettes .. 59 3.1. Hierarchy of Technical Personnel of the Department of Customs and Excise ......... . 74 3.2. Changes in Number of Excise Factories 1966 to 1968 ............................... 77 3.3. Arrears of Excise Revenue 1967 & 1968 ......... 94 3.4. Arrears owed by Companies in Voluntary Liquidation............................. 96 4.1. Local Production and Import of Selected Commodities 1961. to 1968 .............. 137 4.2. Imported Proportion of Total Supply of Some Excisable Products 1961 to 1968 .............. 138 Changes in Revenue from Import and Excise Duties on Beer. 1962 to 1969 ................ 139 $4*4. Changes in Import and Excise Revenues from Motor Spirit and Diesel Oil. 1965 to 1967 .... 14& 5.1. Comparative Annual Rate of Growth of Excise Duty, Import Duty, and Total Federal Government Tax Revenues. 1959/60 to 1968/69 ... 164 vii NUMBER TITLE PAGE 5cSo Excise Revenue as Percentage of Gross Domestic Product 1958/59 to 1966/67 .......... 166 5c3. Percentage Contribution of Selected Commo­ dities to Excise Revenue 1952/53 to 1968/69 .... 172 5.4. Import and Excise Revenues on Motor Spirit and Diesel 1963/64 to 1968/69............... 174 5.5. Quantities of Import and Import Duties on Motor Spirit and Diesel. 1958 to 1964 ........ 176 5.6. Changes in Excise Revenue from Cigarettes and Beer. 1952/53 to 1968/69....7 S . ........ 182 5.7. Effects of Changes in Excise Duty and Production on Excise Revenue from Beer 1952/53 to 1966/67 .......................... 189 5.8. Composition of Total Supply of Beer 1961 to 1968 .............................. 192 <............ 169 5. Annual Rates of Changes in Excise Duty, Import Duty, and Total Federal Government Tax Revenues 1959/60 to 1967/68 .............. 170 6. Regression of- Excise Revenue Yield from Beer on the Rate of Duty ..................... 187 7. Influence of Changes in Excise Duty and Production on Excise Revenue from Beer ....... 190 ix S Y N O P S I S It is now widely accepted that the composition of govern­ ment revenue in most developing countries undergo a steady structural change from major reliance on taxation of foreign trade to taxation of domestic variables as industrialisation progresses. This steady changd-over has been particularly noticeable in Nigeria in respect of excise taxation whose revenue importance has increased significantly since 196 .̂ From 1939» when excise taxation was introduced, till 196 ,̂ this tax was only modestly and cautiously used. But since 1964, there has been an increasing use of excise taxation. It could be argued that given the stage of industrialisation Nigeria has reached and the fact that most of the factories are still likely to be high cost factories which owe their continued existence to tariff protection, such increasing use of excise taxation would appear inconsistent with the policy . V s * of encouraging local industries by enlarging the market for their products. In actual fact, there is no such contradic­ tion as care is taken to see that local industries will have comparative advantage on the local market. x The increasing use of excise taxation has been caused and/or aided by: (1) the adverse trend in the country’s balance of payments which necessitated the taking of various measures to restrict importation of consumer goods so as to release enough foreign exchange for the acquisition of capital goods and, of course, the prosecution of the civil war in the country; (2) the inflationary pressure in the economy caused largely by the mode of financing government expenditure, and retained in the economy by the closure of the outlet valve of importation; and (3) the need to encourage and/or force internal savings for industrial development, Thus, the use of excise taxation in Nigeria has been geared principally towards raising revenue for the Federal Government both to supplement revenue from other sources and to compen­ sate for loss of import revenue which results from import restrictions. In addition, it has been used, as part of a package deal, to restrain*private consumption and thus encourage private savings or withdraw consuming power from private into public handsl Furthermore, excise taxation has been employed as one of the devices for controlling inflationary pressure in the country. A considerable measure of success has been achieved with respect to raising high and increasing revenue from excise tax. The elasticity of excise revenue in relation to the National Income is higher than unity, and it has displayed a higher xi elasticity than revenue from any other tax source. This is due largely to the fact that commodities subjected to excise exhibit characteristics of low price elasticity of demand and/or high income elasticity of demand. The remarkable revenue performance of excise taxation owes very much to the excise revenue yield of four 'core' commodi­ ties viz: cigarettes, beer, motor spirits, and diesel which contributed more than 50%o f total excise revenue. Demand for and production of these commodities have consistently increased in spite of the relatively high excise duties imposed on them. In another respect, the revenue objective has been achieved Thus, excise revenue from individual excisable commodity has been sufficient to compensate fully for fall in import revenue from such commodity. Thisc has been aided largely by the fact that (1) with the exception of a few commodities, excise duty is not levied on any commodity until local production forms a substantial proportion of total supply; (2) local production has been able to grcow rapidly under the umbrella of stringent tariff protection and in spite of increases in excise duties on some commodities. However, increases in total excise revenue has not been compensating fully for reductions in total import revenue simply because the coverage of excise is much less than the coverage of commodities subjected to import duties xii A relatively lower degree of success seems to have been achieved with respect to the other objectives. Thus, private savings and their investment seem to be influenced more by the social norm and acquisitive instinct of the people than by excise duties. By the same reason, excise has been an effec­ tive means of syphoning funds from private into public hands. Also, the monetary and expenditure policies of the govern­ ment would appear to be more effective as a means of dampening demand and thus repressing inflationary pressure. In parti­ cular, the modes of excise levy adopted (flat rates and ad valorem rates based on manufacturer's ex-factory price) are inadequate to perform the task of inflationary control effec­ tively. A system of retail-price-based aft valorem levies would perform the task much better. Certain factors still inhibit the use, or detract from the performance of excise tax in Nigeria. Thus, manufacturers of excisable commodities,'armed with the threat of laying off ■ their workers, occasionally successfully stand in the way of government's use of excise. Also, the modes of levy, and the administrative strategy of excise control adopted give room for dishonest practices on the part of manufacturers and collu­ sion with tax officials to make evasion and avoidance possible. Furthermore, excise tax is administered merely as an adjunct to the customs business of the Board of Customs and xiii Excise and the staff strength devoted to excise business in not being adjusted to meet the increasing scope of excise work. This makes it difficult to institute a really effec­ tive system of excise control. These shortcomings make Nigeria's excise a tax of bigness and honesty and would tend to make it difficult to use excise effectively as an instru­ ment of economic policy unless they are remoi

V .1...2.. 18.4 100 I960 Amount 41.2 5 .1 16.7 S.3 ' 1 .9 17.7 88.9 % 46.3 5 .7 17.9 2.1 20.9 100 1961 Amount 54.8 5.7 14.6 ^ 7 . 7 2.3 26.7 111.8 % 49.0 5 .1 .. 13.3X^ J 6.9 2.1 23.8 100 1962 Amount. 57.0 6.4 8.7 9.9 21.4 114.5 % 49.8 5.6 / ..I K 4 •7.6 8.6 17.0 100 1963 Amount 60.8 7 .1 *11.4 7.6 9.8 19.1 115 .8 % 52.5 9.8 6.6 8.5 16 .5 100 ■6V 1964 Amount 63.4 14.2 7.4 6.5 23.3 124.6 % 50.5 c \ 7.8 11.3 5.9 5.2 19.3 100 1965 Amount S34 13.6 14.4 8.2 10 .3 19.7 149.6% 9 .1 9.6 5.5 6.9 11.8 100 V 1966 Amount "74.v9 2 1 .5 15.9 11.8 15 .6 21.2 160.9 46.6 0/0 13 .7 9-9 7.3 9.7 12.8 100 1967 Amount 54.5 36.0 14.0 16.0 18.4 30.7 169.6 % 32.1 2 1.2 8.3 9.4 10.8 18 .2 100 1968 Amount 53.3 24.8 14.9 22.1 17 .0 18.0 15 0 .1 - % ' 35.5 16 .5 9.9 1 14.7 11.3 12.0 1 100 + Includes Mining royalties, licences, fees and penalties. * Includes: Post and Telegraphs, Interest and repayments and Miscellaneous. Sources: (1) Accountant General of the Federation reports for the respec­ tive years from 1956/57 to 1966/67. (2) Government Notice 1,392; Federal Official Gazette, No.73i Vol.55 of 1968. 5 Nigeria has always relied, to a considerable extent on indirect taxes. Of the indirect tax sources, import, export and excise duties provided, up till 1965/66, more than 66.7% of total annual revenue. This percentage fell to 6l.6% and 58% in fiscal years 1966/67 and 1967/68 respectively. The relative contribu­ tion of each of these changed over the years. Revenue from import duties has always been higher absolutely and relatively, than revenue from any other single source. The contribution made by import duties rose steadily from £33«2 million (i.e. 57.19& of total revenue) in 1964/65. Since then, it has been falling steadily and in 1967/68, import duties yielded £53*3 million (i.e. a3 1 *6% of total reveXnue for that year). On the other hand, excise revenue has been rising steadily, absolutely and relatively. For example, in 1956/57 excise duty yielded £4.3 million (i.e. 6% of total revenue). This rose steadily to £13 .6 million (i.e. 9*1%) in 1964/65 and £21.5 million (i.e. 21.2%) in 1965/66 and 1966/67 respectively. Thus except for two years (1960/61 and 1961/62) when excise made the fifth largest contribution, it had, up till 1962/6 3, actually made the fourth largest contribution. In 1963/64, excise made the third largest contribution and since 1964/65 it has consis­ tently remained the second largest source of government revenue. (See Chart 1) Thus, it is evident that excise revenue has tended to gHABT 1. A.NNUM, OROWTH OF al gov: T Rff/SMS, 7 increase at a much faster rate than revenue from other sources. And this rate of increase had tended to be remarkably high since 1963/6^. The trend, at least, seems to indicate an increasing use of excise by the government. Unfortunately, not much writing or detailed study has been done of this very important and up-coming fiscal tool with respect to Nigeria* Furthermore, most of those who have written about it have not gone more than what amounts to stating that beer, tobacco and soft drinks were subject to excise tax in Nigeria.■*- J. F. Due went a little further by pointing out that the i960 excise on 'Candy' (confectioneries) and soap had failed.^ Adebayo Adedeji in his very recent book^ devoted about two pages to the discussion of excise taxation in Nigeria. In it, he compared the rates of increase in excise revenue between 1959/60 and 1965/66 and also compared the coverage of excise in 1958 with the coverage in 1965* He further, very briefly, stated what he considered the advantages and disadvantages of what he called "The present system of individual excises" and concluded that the system be changed to what he called "a broad-based1 23 1 . See for example P.C.N. Okigbo; Nigerian Public Finance, (London, Longmans, Green and Co. Ltd., 1965) p.205. see also, International Bank for Reconstruction and Development, The Economic Development of Nigeria; (Baltimore: The John Hopkins Press, 1955) p.113* 2. J. F. Due: op.cit 3 . Adebayo Adedeji, Nigerian Federal Finance, (London: Hutchinson Educational Ltd., 1969) pp.177-179* S' I* 8 indirect tax". Adedeji gave, as examples of his broad-based indirect tax, "a general sales tax or a value - added tax ..... confined ........ to the manufacturing level"1. However, while his contribution is definitely more stimulating than anyone made before him, it cannot be said to be nearly sufficiently educa­ tive about excise taxation in Nigeria. Aim,, objective, and scope of dissertation We have chosen as bur topic for this research, "EXCISE TAXATION IN NIGERIA" Our aim is to examine what roles excise taxation has been made to play and how effectively it could be said to play such roles in the circumstances in Nigeria. To help put Nigeria1s excise in its proper perspective we shall also examine the evo­ lution of the tax in Nigeria and how adequate the administrative machinery for excise control is to meet the increasing scope of excise work in Nigeria and suggest reforms if necessary. 1. In our opinion, Adedeji* s first suggested system of J4a general sales tax confined to the manufacturing level" does not mean more than broadening the coverage, under the existing system, to include all commodities manufac­ tured in Nigeria! Also the premise on which he thinks his second suggested system of a value added tax would be !!better" than the existing system becomes unclear in light of his earlier observation that there are manufac­ turers who do ncht maintain adequate records or who may be relunctant to reveal gross revenue and/or value added. One gets an impression that, in making this suggestion, he was influenced more by the fact that the system exists in some "other countries" than by any other reason** 9 These we are setting out in six. chapters: Chapter 1 is the introduction. Chapterll deals with evolution of excise taxation in Nigeria. It examines through the changes in excise laws, coverage and rates, the changes, over time, in government's use of excise in Nigeria. Chapter III examines the administrative machinery with respect to the Administrative organization, strategy of control and deployment of technical staff. It further^examines the loop­ holes there are for evasion and avoidance and ends with some suggestions for reform. Chapters * V deal with issues ofa theory, policy and performance of excise in Nigeria. In the theoretical issues we try to stipulate conditions necessary for excise to achieve certain economic policy goals. Then we try to establish what roles excise could be said to have been intended to play in Nigeria and how far excise has been success ful in attaining the goals. Chapter VI makes a brief summary of our conclusions and recom­ mendations . It must be stated, however, that this work does not, in any deliberate fashion, attempt to examine how equitable the tax. , is, the placing of the incidence of the tax and whether or not it is better or worse than any other type of tax. It is hoped that apart from being useful for the government 10 this work would provide a useful basis on which further studies of excise taxation in Nigeria could be based. Sources Apart from Library research, we have had to rely, to a considerable extent, on government sources for our information and data* Thus we have relied on the Federal OfficiQal -Gazettes for stalls of changes in excise laws and rates<£lso, fro* various publications of the Central Bank of Nigeria, the Board of Customs and Excise, the Federal Office of Statistics, and the Ministry of Industries, as well as%reports of the Accountant General, and some records of the Board of Customs and Excise we have extracted most of the data we have used. Issues relating to excise are very much shrouded in official secrecy. Thus important issues of policy are either not recorded (for fear of leakage) or tucked away in strictly nconfidentialn files which, unfortunately, were not put liberally at our disposal We have therefore had to rely, largely, on discussions with top officials of the Ministry of Finance and of the Board of Customs and Excise for information on policy issues. (We were particu- - • - V ■: A ‘ ? larly lucky to succeed in having an interview with the secretary of the National Tariff Committee^ who has also had excise on his official schedule for over four years). In addition, we have lo The National Tariff Committee is responsible for formulating both Customs and Excise Tariff policies of the government. It comprises of officials of the Ministries of Finance, Trade, and Economic Development and of the Board of Customs and Excise. Minutes of the committee’s meetings, we were informed are not kept. 11 made use of official publications and our own deductions to establish policy issues. For the five months during which we conducted our field research, we made the Headquarters Office of the Board of Customs and Excise our base. This gave us much opportunity of seeing the working of the administration - "from inside”. It afforded us the opportunity of chatting, regularly, with various officials of varying years of experience in the technical aspects of Customs and Excise administration, with a view to understanding what problems are encountered in excise control. Furthermore, we sent questionaire^ to 100 excise factories. The questionaire was designed to help establish how much the excise duty levied on their products has affected their profit and turnover. Unfortunaitteellyy,, the response from this source was rather poor. Only 16 replied to our questionaire. And of these, only 3 gave some of the information we asked for. Others merely regretted they not prepared to give the information asked for. Unfortunately, a follow-up with personal visits to some of the factories, after we saw the response to the questionaire was poor, did not prove useful. Some manufacturers claimed that they give information about excise only to government functionaries who are officially entitled to ask for them. 1 1. See Appendix 12 Others were suspicious ̂ apparently on the ground that we might eventually take up appointment with the Board of Customs and Excise and probably use any information given against them. Moreover, in spite of assurances given that the information asked for were absolutely for research purposes, some thought they could play into the hands of their competitors should they supply the information asked for. 1. In fact, one manufacturer offered to employ us on a Lecturer’s salary if we would give up the research and join his staff. j r 13 CHAPTER 2 EVOLUTION OF EXCISE TAXATION IN NIGERIA Excise taxation is now the second most important source of government revenue in Nigeria (second only to import duties). Although it has only recently become so important, its history in fact dates back into the nineteen-thirties. Stages in the development of Excise taxation m Nigeria Since it was first introduced in 1933, three stages of evolution can be noticed in the development of excise taxation. (a) The first stage which lasted from 1933 to 1955 marked the introduction and treatment of excise taxation as just ano­ ther source of government revenue. (b) The second stage, starting from 1957 and ending in 19^3i marked renewed tVhinking in government circles about the administration of, anti the possibility of a change in revenue pattern of the government to put more emphasis on excise taxation. (c) The third stage, which started since 1964, marks a steadily increasing use of excise taxation by the government both for revenue purposes and as a tool of achieving other economic objectives. (a) Introducing another type of tax The first excise law, Ordinance to Impose Duties of Excise on Tobacco and Cigarettes” ̂was passed in 1933* That law empowered the Governor to levy and collect excise duties on tobacco by Order in Council, signified by resolution# Manage­ ment of Excise was placed under the Comptroller of Customs (who was a member of the Council) and any officer of Customs was empowered, if so directed by the Comptroller, to enforce comp­ liance with the Ordinance # The law prescribed licence require­ ment for the manufacture of cigarettes or tobacco and records to be kept relating to quality and quantity of cigarettes and tobacco manufactured*x^# Tobacco made in the native fashion with­ out the use of machinery was exempted from duty. The object of this law was said to be ”to foster and encou­ rage the tobacco industry in Nigeria"1 1. Thus it was stated that the Governor might impose as terms of granting a licence to manufacture c es Conditions in regard to promoting the cultivation of suitable tobacco... i.5 Apart from this, there was no ostensible reason for the ordinance at the time. 1. Federal Official Gazette, Supplement L. N. 23 of 1933* 2. Ibid. S.7 3. Ibid. S.5.(1) and S.5(3). f̂. Ibid. This was stated in the explanatory note following immediately after the Act. 5. Ibid. S.5(2). 15 (Inspiration seemed to have come from the fact that such a law was in force in Tanganyika at that time and the people who drafted the lav/ took pains to compare the Nigerian law with that operating in Tanganyika). However, it would sound ridiculous that an excise tax had to be imposed on an industry to foster its growth. In actual fact, the government seem merely to have envisaged the establishment of a tobacco factory (the products of which are almost alv/ays obvious targets for sumptuary tax in any country) and prepared the ground for the imposition of excise tax on the products. Although the law was passed in 1953? it was not proposed to levy any duty until the industry actually came into being. Hence the first excise levy was actually imposed in 1939a , by resolu­ tion of the Legislative Council in respect of the Southern Province and Order of the -Governor in respect of the Northern r 01 t n Provinces . As will be shown below, the first excise levy on cigarettes was fashioned to make cigarettes containing a higher proportion of locally grown tobacco subject to lower rates of duty than those containing higher proportion of imported tobacco. Thus an argument that the government intended to encourage the use of local tobacco would be a more plausible argument than the one adduced earlier on for introducing excise taxation in Nigeria.1 1. Federal Official Gazette, Supplement. Resolution and Order No. 2 of 1939­ 2. This was in accordance with the Constitutional arrangement in Nigeria then. 16 Thus it could be said that government sought, at this initial r stages, a way of supplementing its revenue by imposing excise tax but attempted, by the rates structure adopted to encourage the use of locally produced raw materials. It was soon discovered that the 1933 Ordinance was inade­ quate. In particular, it appeared to be rather general and lack­ ing in many respects. A more detailed, more comprehensive law ("Excise Ordinance, 19^1") was therefore passed in 19^1* The Act set out provisions relating to powers and duties of the Comptroller and officers of the department, regulations designed to aid the collection of excise duties - (viz - regulations about warehousing of Excisable goodiss, renmoval and obligations of manu- facturers to obtain licence to manufacture, keep prescribed records, and furnish required information), offences under the law and instruments of enforcing compliance with the excise law. The Comptroller was given overall control of the management of excise taxation, and the acts of any officer or person appointed by him for the performance of any duty required by excise law, and relating to excise revenue were to be deemed the acts of the Comptroller^-# Application for licence to manufacture excisable goods were to be made to him and this he could validly refuse without ascribing a reason 2. He was empowered to prescribe from TT Ibid. S.86 ’ 2. Ibid. S .k O 17 time to time, forms required to be used for purposes of the excise laws\ He could exercise discretion with the respect to, and permit accordingly, the form and manner of removal or delivery of goods in special circumstances where the excise laws might not be conveniently applicable«, Express permission of the Comptroller must be got before excisable goods were ware­ housed and he might require the warehousekeeper to ent er into bond to secure the duty payable on such goods• Furthermore, with respect to duties and drawbacks, unless the courts decided otherwise, the rate or amount of excise duty or drawback allowed by the Comptroller was deemed and taken to be the proper duty or drawback'<3 w- en where the parties to a contract of sale could not agree on additions to or deductions from the contract price occassioned by a change in rates, the Comptroller was the final arbiter as to what it should be. 2jl He was empowered to distrain for duties not paid after they have fallen due and to revoke any licence Dr permission of the offend- ing manufactu6rCe~r 'to manufacture-^. Also, he had power, exerci­ sable only with the approval of the Governor, to mitigate or remit any penalty or forfeiture. And he could compensate any informer to the tune of £5* (The consent of the Governor was needed if more than £5 was to be paid in reward). 1. Ibid. ------------------------- 2. Ibid. S .28 and S.29 3- Ibid. S.l6 V. Ibid. S.19(3) 5. Ibid. S.25 and S.26 18 In effect, the Comptroller v/as made responsible for virtu­ ally everything that had to be done or decided in respect of excise control. However, the Act in addition, gave him exten­ sive powers to delegate his authority to any officer or any other person he might choose. An officer as defined by the Act was any person employed in the department of Customs and Excise and all members of the Police Force as well as any other person act *S V B aid of any such person. The law recognised that actual collection of excise revenue was a duty likely to be delegated to any employee of the department. It therefore vested the officers with extensive rights and powers. An officer could patrol freely and was empowered to enter, by day or by night, any part of any factory producing, or any warehouse storing, excisable product for pur­ poses of taking samples and taking account of materials used in production of such excisable product'*'. If necessary, he could use force or even break a wall, if refused entry, to enter into such Ffuarctthoreyr!more, the officer could take samples from the pre­ mises of anybody selling excise products and pay the price for such goods taken as samples. He could also search any house, or vehicle to ascertain that goods on which excise duty had not been paid were not being harboured, or search a person if he v/as 1 1. Ibid. S .^ k . 19 informed or he suspected that the person had on him excisable goods on which excise duty had not been paid. He could also refuse to transact business with any agent of the manufacturer who did not produce written authority of the manufacturer to act on his behalf**'. It would naturally occur to anybody that these powers given to the officers could easily be abused by any unscrupu- lous officer to trespass, for ill motives, or infringe on the personal liberty of anybody under the excuse of mere suspicion. However, the law imposed a penalty of dismissal and/or fine ranging from £100 to £500 for proved acts of dishonesty on the part of officers. Certain things, were required to be done by manufacturers, designed to facilitate excise collection. Excise licence granted was to apply to a set of adjoining premises specifically stated in the licence. It could be transferred, on death to the per­ son beneficially interested, by endorsement by the Comptroller and on payment of a fee. Manufacturers and warehousekeepers were required to keep on the premises, and make available to officers for inspection and extraction, all books and forms relating to the manufacture, storing and delivery of excisable goods 2# They were also required to produce for inspection, on the request of the Comptroller, invoices and other books and1 1. Ibid. S.5 2. Ibid. S A ? 20 answer questions regarding description, manufacture, quantity, selling price, consignee, designation etc, and produce evi­ dence in support of such information^. It was made necessary to submit to the Comptroller, an entry of premises contain­ ing a description and plan of the factory and every machine, apparatus etc. used, before starting to produce, and thereafter upon request by the Comptroller 2. Necessary apparatus for checking the products were to be furnished by the manufac­ turer* And he would incur a penalty of £200 fine if such apparatus provided were inadequate and were intended to defraud. In many respects, this 19^1 Act provided a better machi­ nery for management of excise* The powers and rights of excise Collectors were more clearly set out. Similarly, the duties of the manufacturers were more clearly defined. Furthermore, it provided room for the setting up of an administrative machinery that would ensure effective control of excise. Most importantly< ^ h e ”p]ossibility of dishonest practices on the part of tax officers was realised and punitive measures for such practices were stipulated by the Act. W o ensure effective management, the Comptroller required the free hand the law gave him. The extensive power to dele­ gate would obviate the danger of "personalisation of the department in the person of the (Comptroller)" (to borrow T7 S . k8 2. Ibid. S.*f9 21 S. S. Surrey's phrase)^. It would also ensure that only very important cases came up to him for decision. But the idea of having such important decisions taken by one person would appear vexatious. The decisions might be made subject to the whims and caprices of the person who, at the moment, was the Comptroller. In the hands of an unscrupulous man, the manage­ ment could become an instrument of favouritism or oppression - to the detriment of revenue and the economy. And when one thinks of the increasing advisory role such functionary would be expected to perform (especially as he was also a member of the Legislative Council) in the eve a more intensive use of this fiscal tool, the danger rving a 'sole administrator' as it were becomes more obviot However, but for a (although significant) amendment made in 1952, this 19^1 Ordinance continued to be in force, and the Comptroller continued to be at the hrel\m of affairs, until 1958. But before we discuss this 1952 amendment we shall havd a brief look at some regulations made in the intervening years. In 19^5, regulations were made to regulate the manufacture of tobacco to meet the requirements of the 19̂ -1 Ordinance 2• Also, in that year, brewing of beer was brought under excise control by revoking the Brewing Regulations of 1919 and by 1 1. S. S. Surrey: "Tax Administration in Underdeveloped Coun­ tries"; published in Bird and Oldham, Readings on Taxation in Underdeveloped Countries; Baltimore, John Hopkins Press, 19^7 at p.518. 2. The Excise (cigarettes, cigars and other manufactured toba­ cco Regulations, 19^5i No. 2k of 19^5* 22 making other Brewing Regulations under the 194l Ordinance. Just as was the case with tobacco in 1933 these 1945 regulations about the brewing of beer were made in anticipation of the esta­ blishment of the Industry in Nigeria. Excise duty was not actually imposed on beer until 1949 when the Excise (Duty on Beer) Resolution, 1949 2 was passed to amend the Schedule to the 1941 Ordinance to include Beer. This brought to two, the num­ ber of commodity groups subjected to excise tax in Nigeria. Also in 1949, the authority of the Legislative Council to legis­ late on excise was extended to cover the whole country rather than the Southern Provinces only'o With the change, in 1951» of the mode of levying excise duty on cigarettes from a flat rate per specific weight to a percentage of selling price per specific weight (i.e. from a specific to an ad valorem basis) , it became necessary to empower the Comptroller to call for certain additional informa­ tion from the manufacturers. These were information to enable him ascertain what the actual value should be in case it appeared to him that the selling price^ declared by the manufac- tur lower than what it should actually be. The additional information include cost of production and profits taken or to be taken by the manufacturer. This additional power was given 1 1. Brewing Regulations, 19^5» No. 25 of 1945* 2. Excise (Duty on Beer) Resolution, 1949, No. 3 of 1949 3. Excise (Amendment) Ordinance, No. 18 of 1949- This amend­ ment merely brought the Excise Law in conformity with the Constitutional arrangement in the country then. 4„ Excise Tariff Order, No.32 of 1951 5. Selling price was intended to be ex-factory price which would include cost of production, profit, and excise tax. 23 by an amendment made to the 19^1 Act, in 1952 • However, in order to protect the interest of manufacturers and to facilitate their disclosing all necessary information, the amendment provided that "...... powers conferred..... on the Comptroller, in so far as they relate to questions regard­ ing the cost of production and manufacturer.'s profits in respect of any excisable goods shall not be exercisable by any officer than:- (a) The Comptroller, (b) The Deputy Comptroller, (c) any officer of the Department of Customs and Excise not below the - rank of Inspector and Instructor of Customs and Excise whom the Comptroller, with the approval of the Governor may authorise in that behalf"^. The amendment also made it an offence for anybody in posses­ sion of any information or evidence given by manufacturers relat­ ing to their cost of production and profit to communicate or produce it to any person "other than a person to whom he is authorised by the Governor to communicate it; or otherwise than for the purposes of the Ordinance"?. Furthermore, it empowered the Comptroller to require any manufacturer of excisable product to submit annually, or at any other time specified by him, a certificate of audit, by an accountant, approved by him who is not an employee of the manufacturer. 1 1. Excise (Amendment) Ordinance, No. k o f 1952 2. Ibid. No. k of 1952 S.2 ( k 8 ) (2). 3. Ibid. S.2(W(3). 2k This amendment was significant in two respects: (i) It was a deviation from the unbridled freedom with which the Compt­ roller could delegate formerly - a sort of device to assure the manufacturers of secrecy while demanding full disclosure of their activities for tax purposes,. (ii) It provided a means whereby the tax office would be able to detect excise tax eva­ sion through an analysis of the manufacturer's cost and finan­ cial accounts. However, the scope of the use to which such •classified information' could be put was not fully appreciated. Thus it was intended only for the ascertainment of selling price in case of ad valorem levies. Furthermore, the power to ask for such information was clearly meant to be exercised only occasionally and possibly sparingly too. However, this amand­ ment marked an importantin stagiee in the development of efficient machinery for comprehensive excise control. (b) Renewed thinking about Excise 1957 to 1958 was a period of renewed thinking, in govern­ ment circles, about Customs and Excise management^. It was strongly felt that the existing Customs and Excise legislations (which were said to have stemmed from a United Kingdom legisla­ tion, dating back from 18^0) contained provisions which were I. I. In his address to the Inaugural meeting of the Board of Customs and Excise on 1st April, 1959 , Chief Festus Okotie-Eboh, the Minister of Finance for the Central Govern­ ment said that "two years ago (i.e. 1957) consideration was given to the possibility of amending or replacing the old Customs Law." - See Board of Customs and Excise Annual Report 1959/60, Appendix 1 at p.15* 25 inconsistent and out of date. There was need for a new and up-to-datd machinery which would simplify the procedure of collection and effect economies in the administration. The result was the emergence, in 1958 of two Ordinances: The Customs and Excise Management Ordinance"*" and the Excise Tariff Ordinance^ and the revocation of the 19^1 Ordinance. Although, in tune with the relative importance (in terms of revenue yield) and scope of excise tax to custom taxes the Customs and Excise Management Ordinance gave excise the lesser attention, it never­ theless marked another significant stage in the development of excise tax management. The Customs and Excise Management Act of 1958 transferred the control and management of Excise from a Sole Administrator- The Comptroller to Board, namely the Board of Customs and Excise set up by the Act. Subject to the general control of the Minister of Finance, the Board wg.s charged with the duty of controlling and managing the administration of Customs and Excise laws, and of collecting and accounting for customs and excise revenues. T^h em mBoard was to comprise of a chairman, a deputy chair­ man, a public servant in the Ministry of Finance, two officers engaged on the administration or execution of Customs and Excise Laws, and a person, who is not a public servant, lT Customs and Excise Management Ordinance, L.N.55 58 of 1958 2. Excise Tariff Ordinance, L.N. 58 of 1958. 26 nominated by the Minister of Finance . Furthermore, the Board was empowered to co-opt members for purpose of obtaining advice but such co-opted members have no right to' vote. Only three members would be needed to form the Quorum at any meeting. As under the Excise Ordinance of 19^1, the Board was given completely free hand as to what extent it0 c3ould dele­ gate its powers and duties under the Ordinance. In fact, the Customs and Excise Management Act went beyond it. For exam­ ple, the 1958 law did not re-enact the provision of the 19*tl Ordinance (which it repealed) relating to the category of people who could exercise the power of the Comptroller to require manufacturers to supply information about their costs of production and profit. However, the Act made the law about secrecy apply to all information and documents supplied or produced in pursuance of any requirement of the Customs and Excise Laws There were some other areas of differences between the 1958 laws and the 19̂ -1 law. Thus, under the 1958 Acts, the Board could now pay up to £20 reward to anybody, who is not a public servant, for excise service done. (The 19^1 Act1 1. The law required that at least two Nigerians must be on the Board. If, therefore the Board as constituted does not include any Nigerian or includes only one, two or more, respectively, engaged on the execution or admini­ stration of customs and excise laws should be appointed. 27 allowed only a maximum of £5). In other cases, the approval of the Minister (Governor under the 19^1 Act) was necessary. Also, the Board was not required to arbitrate, as under the 19^1 law, between contracting parties in case the object of the contract was caught, before delivery, by tariff changes. The law only requires that the party who should thereby benefit should be allowed to1 were thereafter to be taken both in the first and subsequent years of production for one year at a time (each licence falling due on the 31st December each year), whereas under the 19^1 ordinance, licence could be given for part of the first year of production on j nt of the appropriate proportional quarterly dues. In addition to these, certain provisions of the 19^1 Act were completely left out of the 1958 Acts. Thus, the 1958 Acts did not provide for the warehousing of excisable pro­ ducts before payment of duty. Also, the special power, gran­ ted under the 19^1 Act, to ask for information about cost of production and profits of manufacturers was not specifically allowed for by the 1958 Acts. Furthermore, punitive measures for dishonest practices by excise officers were completely left out of the 1958 Acts. However, the 1958 Management Act increased the number of commodity groups to be subject to excise control from two to T~. Excise Tariff Ordinance 1958 S. 7(1) and (2). 28 three. Hitherto, only tobacco and beer were manufactured under excise control. But the Management Act, in addition to these, made provision for subjecting the manufacture of spirits (and methylated spirit) to excise control. New regu­ lations, controlling the brewing of beer and the manufacture of tobacco, were made in 1959 to bring the old regulations in line with the provisions of the 1958 Management Act. The major importance of these 1958 Acts is seen in the substitution of the Board of Customs and Excise for the Comp­ troller in the Management of Excise. Apart from obviating the dangers, pointed out above, of management by a sole admi­ nistrator, the Constitution of the Board ensures that the rationale of excise management would be based on experience in Customs and Excise work and other aspects of the public service, as well as, on the specialised knowledge and experi­ ence of people outside the public service. On the contrary, among others, the omission of provisions for warehousing, the absence of punitive measures for dishonest practices by tax officials and the fact that provisions for excise control were made for specific products were important short-comings of the 1958 Act. However, the experience of the few years after 1958 showed that the provisions of these Acts with respect to excise were not sufficiently forward looking. Just two years after (i.e. in i960), the government 29 decided to expand the coverage of excise to include soft drinks and confectioneries. The Management Act was however very inflexible as to bringing commodities under excise con­ trol since it only made provisions for specific products (viz: tobacco, beer and spirit). Hence it had to be amended to allow for these new products. Thus by the Customr^s^ anncd Excise Management (Amendment) Ordinance, 1960^ an amendment was made to the Act, to require excise licencOe fvor the manu­ facture of any product (other than tobacco, beer, and spirits) on which excise duty is levied and to empower the Governor- General to make regulations to regulate the manufacture of, and collection of duty on, such goods. Under this power, the General Excise Regulations of I960 2 were made. These regulations: (a) made entry of premises, plant and other materials to be used in production and storage of any excisable products (other than tobacco, beer and spirits), and written permission of the Board pre-conditions to commen­ cement of manufacture; (b) made it obligatory on manufacturers to facilitate the location of their factories and checking by officers of the Board; T7 Customs and Excise Management (Amendment) Ordinance, I960; Ho. 18 of I960 2. L. N. I l k of I960. 30 (c) require that manufacturers should keep registers of materials (showing flow of stock), products manufac­ tured and operations to correlate records of the mate­ rials and products registers; (d) stipulated the mode of calculating and securing duties due; and (e) empowered the Board to allow excisable p)r oduucts to be delivered for exportation or shipment as stores with­ out payment of duty. It will be seen that both the amendment to the Manage­ ment Act and the General excise regulation were designed to make it possible to subject any tcovmmodity to excise control# This, at least, gives an indication that the government intended to, or at least realised the possibility of, an increasing resort to excise. Duties were imposed in April, on soft drinks and confec­ tioneries and in December on soap. These impositions posed certain problems which had not been experienced with the two commodities which had hitherto been subjected to excise duties. The factory units in which these products were manufactured were smaller than those of beer and tobacco. And, particu­ larly in the soap industry, there was a large number of very small scaled indigenous manufacturers whose typical factory structure (occasionally open space) and methods of production 31 did not make their factories amenable to excise control. Also, in some cases, the rate of excise duty imposed appeared to be rather high and unrelated to the demand structure of the products at the time. Furthermore, the very large number of factories engaged in the production of these commodities widened the administrative scope required for effective excise control much beyond what was provided. But rather than face the administrative and other problems involved, confectione­ ries and soap (the two products that posed the greatest prob­ lems and whose factory-type manufacturers were very loud in their protest against the tax) were de-excised in December I960 and August 1961 respectively. However, the inadequacies of the Board of Customs and Excise in handling complicated issues in excise administra­ tion were already highlighted. And since the government was embarking on a six-year National Development Programme (1962­ 68), which was geared, inter-alia towards the development of import substitution, it was obvious that more emphasis than before would have to be placed on excise. As pointed out by Chief Festus Okotie-Eboh, (then the Federal Minister of Finance) "with the changing pattern of revenue control being brought about by the spread of industries and the con­ sequent growing importance of excise as opposed to customs duties, it has become apparent that a measure of re-organi** sation is required if the Board is to discharge its functions effectively” "̂. Thus a United Nations expert oh administra­ tion (Mr. W. Cassey) was appointed (during the 1962-63 fiscal year) to look into the problems of re-organisation 2 Meanwhile, two other amendments had been made to the excise laws. The first, which was made in 1961, fixed a general period of one year, from the time occasion arises for it, within which drawbacks could be claimed second and more important one was made in 1963* This one: 1. empowered the Governor General to provide for the exportation and loading as stores of spirits with­ out payment of duty; and 2. empowered the Boardy if necessary, to require any holder of excise licence to provide, at his own expense, suitable living accommodation to an excise officery- on or near his premises. In addition, the coverage of excise had been further increased by osition, in 1962, of excise duty on Matches. lT See "The Modernisation Budget” '(a budget speech presented to the Federal Parliament by the Minister of Finance in NL963) Government Printers, Lagos, 1963. 2. The report of Mr. W. Cassey, we were informed, was nei­ ther published nor circulated to officials of the Board of Customs and Excise. All we could gather from the older members of the staff was that his recommendations were not implemented by the Government. Unfortunately all efforts to see the report failed as it could not be traced either in the Ministry of Finance or in the Depart­ ment of Customs and Excise. 33 Although there were increases in the number of commodi­ ties subject to excise, this period (1956-1963) can be seen more importantly as a period of administrative re-organisation, of adventurous dabbling into excise fields and of increasing realisation of the revenue potentialities and administrative complexity of excise taxation in Nigeria* (c) Emergence into prominence Developments in the economy were, however, destined to increase the tempo with which resort was being made to excise. Among others, the need to put a halt to the fast deteriora­ tion of the country1s Balance of Payments position and the need to mobilise internal savings for financing the National Development plan called for measures that would not only reduce imports but also prevent consumption from rising as much as incomes were rising* A combination of fiscal and monetary tools of which excise was one, was put to the task. Thus, in 1964 a leap was actually taken in the use of excise taxation in Nigeria. Two rounds of expansions in March and August 1964 increased excise coverage from four to twenty- two commodity groups. With this expansion in excise tax coverage, the problem of control mounted and it became necessary, in 1965, to amend the excise laws to provide for more effective control over the 3^ new Industries. Thus the 1958 Management Act was amended to empower the Board to require every holder of excise licence to: 1. submit all invoices and other documents, in his possession, relating to any excisable goods bought or sold by him within twelve months prec* the date of a written request; 2. to answer questions put to him relating to such goods anda; *■; s > 3. to produce evidence to support such answers. The Excise Tariff Act, 1965 was also passed. This repealed the 1938 Excise Tar t and re-enacted its provi­ sions with some additions which defined what the value of an excisable good is to be for excise purposes. It also empowered the Board to ask for such information as might be necessary to make proper tion of the products. In addition, proce- dure in the illation of spirits', designed to aid the checking of the manufacture of, and the collection of duty on, spirits was laid down in the Excise (control distillation) Act 1965.“2. Nevertheless, the control of excise on certain products /viz. Soap (on which tax was again levied in March 196^), Singlets, Shirts, plasticware and footwear^posed so lT The Customs and Excise Management (Amendment) (No.2) Act, 1965. . 2. L. N. 79 of 1965. 35 much problems (which were v e r y identical with those of i960 in respect of soap and confectioneries) that they had to be de-excised in August 1965* Some further amendments were made to the management law in 1966 .̂ It was provided in the amendment that befc removal of any excisable goods from the premises of the manu­ facturer, entry of such goods must be made and delivered to the proper officer. (This was designed to make for more efficient control). Also, the power of the Board to distrain for duty if not paid at the time within which it was payable was liberalised. Thus, power of ess could now be levied only after the defaulter has failed to pay on demand. *̂ uch demand is to be made either on that person personally or by © 2h is place of abode or business • Furthermore, tighteerr mm/ & Soap Butter etc Apparel (shirts and •ducts As for Packing Con­ single Confectioneries 1966 tainers Biscuits Apparels/ Cosmetics & Blanket Biscuits Cement Blanket Roofing Perfumeny Sheets Flour, Corned Beef Cement Furniture Enamelware Corned Beef y iB for 1965 Reoords Footwear Enamelware minus Jewellery Nails, Barbed wire *tc, Footwear/ Electric bulbs Paint Nails, Barbed Soap, Ball point Pen Piece Goods wire etc. Apparels Bicycle tyre Ppliastic ware Paint Footwear & rtable Spirit Piece Goods Plasticware Socks Mattresses. Tow1el & Towelling Plastid Ware/ O Tnravelling Trunks Portable Spirit Yarn/ & Thread Towel & Towelling Pneumatic Tyre Travelling Trunks Liquefied A Thread Petroleum gas Pneumatic Tyre Radiogram and Metal Containers Record playen Household Utensils Tanned Leather Tabs Sz Rags Oils Snufff o$ Reinforcing rounds Wine & Apentif s / de-exoised bef‘ore the end of the Year. + means plus Source: Federal Official Gazette (supplement) for the respective Years. 4o the number to four. In December I960, sugar confectioneries was de-excised but it was replaced immediately by soap. However, barely nine months after, soap too was de-excised 2. Matches was taken into the fold in April 1962 -z. Thus up till March 1964, only four commodity groups - Cigarettes, Beer, soft drinks and matches were being taxed . 3 - saw a breakthrough with excise* As seen from Table 2.1, eighteen new commodities were subjected to tax 4• These include soap and sugar confectioneries which were de-excised in i960 and 1961 respectively. The other new excisable commodities were: Apparels (shirts and singlets) Biscuits, Blanket, Cement, Corned Beef, Enamelware, Footwear, Nails, Barbed wire etc., Paint, Piece Goods, Plasticware, Portable Spirit, Towel and Towelling, Thread and Pneumatic tyre. It is significant that these new commodities intro­ duced consisted not *?nly of final consumer goods but also intermediate goods like cement, paint, nails, barbed wire etc. and piece goods. Also it is noteworthy that production of all th,ex new commodities, expect Portable spirit started before 1964. Furthermore, as a result of the adverse trend in the Balance of Payment position of the country at that l7 Excise Duties (Amendment) Order, L.N. 193 of i960. 2. Excise Tariff (Amendment) (No.2) Order, L.N. 117 of 1961. 3. Excise Duties (Amendment) Order, L.N. 26 of 1962. 4. There were actually two rounds of expansion in coverage. In March, the number increased by 12 - L.N. 25 of 1964 and in August it was further increased by 6 - L.N. 92 of 1964. . k l time, the government had to take stringent measures to restrict imports and these new products were among those which were thereby given additional protection than before. Soap, Apparels (shirts and singlets) footwear and plastic ware were de-excised in 1965^* However, tax was imposed on six new commodities*"2" - Metal Containers, Household. Utensils, Tanned Leather, Reinforcing Rounds, Wine and Oils (including Motor Spirits and products, Diesel, Kerosene, Lubricating oil, engine oils, etc.) Four new commodities were subjected to excise tax in 1966 3 . These were Radiograms, andA reTcord players, Tabs and rags, Liquefied Petroleum gas and snuff (which is actually a tobacco product). And in 1967, only Roofing sheet was added, bringing the number of excisable commodities to 29. With the outbreak of war in 1967 (to put down the rebellion in the former Eastern Region), it became necessary: (l) to regulate very>strictly private use of Nigeria's foreign ej and mobilise funds internally to contribute to the war effort and reconstruction. Thus the screw on importation was tightened further. The number of commodities which could be imported only under specific import licence was increased. Thus specific control T . Excise Tariff (Duties) (No.2) Order, 1965 L.N. 93 of 1965 2. Excise Tariff (Duties) (Nb.l) Order and (No.2) Order of 1965 3. Excise Tariff (Duties and Exemptions) (No.l), (No.2) and (No.3) Orders 1966. kZ on imported goods extended to cover virtually all commodities manufactured locally* As a result, it became necessary for revenue purposes, among other reasons, to further expand the coverage of excise. Thus 1968 witnessed another substantial increase in the number of excisable commodities^ Twelve new commodities - Butter (and butter substitutes), Packing con­ tainer, cosmetics and perfumery, flour, furniture, records, jewellery, electric lamp, mattresses, ball pens, bicycle tyre and socks were subjected t/oU tl/aCtx<̂ This increased the number to *fl. Changes in rates structure: Cigarettes; As pointed out above*? the oldest excise levy was on cigarettes. The first excise duty was based on weight of 1000 cigarettes and the percentage of local tobacco used in production. As can be seen from Table 2.2, cigarettes were classified into two-categories of quality and two sub­ categories of aterial inputs. Thus (l) where the weight of 1000 cigarettes was less than or equal to 3 lb, duty was levied at 5/- per 1000 if the cigarettes contained less than 10% l0M?al leaf and at 2/ld per 1000 if the cigarettes con­ tained more than 10% but less than local leaf; and (2) where the weight of 1000 cigarettes was greater than 3 lb, duty was imposed at 2/- per lb on cigarettes containing IU Excise Tariff (Amendment) Decree No.^9 of 19^8. T A B L E a- a CHANGES IN EXCISE LEVIES ON CIGARETTES S P E C I F I C L E V I E S less than 10# local leaf, 6th March, 1939 W(1000) ^ 3Ibs. 5/- per 1,000 2/ 1 d per 1,000 tain more than 10# but less than W(1000)> 3Ibs. 2/- per lb. 10d per lb. ,y(100)£: 3Ibs. Wdooo) > 3Ibs. 4th April, 1940 4/2d per 1,000 1/9d per lb. 28th October, 1941 1 1 /- per 1,000 4/6d per lb. A" B" —i A" Where wholesale price ex-factory exclusive of excise duties does not exceed 22/6d per 1000 9th August, 1942 23/- per 1000 32/- per 1000 2nd August,* 1943 23/- per 1000 44/6d per 1000 > B" 'Where wholesale price ex-factory exclusive of excise exceeds 22/6d per 12th March, 1949 25/- per 1000 44/6d per 1000 1,000 provided 400 cigarettes do not exceed 1 1 b.; if they do, them pro - rata at 400 cigarettes per lb. AD ^VALOREM LEVIES W(1000)- 21b. Wdooo) ^ 2341b. 7(1000) *> 2#lb. Selling Price is the price declared by the manufacturer inclusive of excise duty at which the cigarettes are 20th August, 1951 40# 50# sold by him ex factory 24th Feb., 1956 30# 40# 50# W(1000)£-2 1b. 21b*W(lOOO) 4:2#lb & 21bAw(l000) i5=2>atbs & W(l000)>2#lb. SP (1000)4:70/- SP (1000) >70/- 31st January,1959 30# 4405## 48# 5028th March, 1966 35# 53# 55## W(1000)^-1lb.& Wdooo)4:2^1bs. 8c wdooo) 4e#ibs. 8c W(1000) > 2tflb. 8c f SP(1000 )4L25/- 2 5/- *-SP( 10 0 0 )— 30/- 50/- ̂ SP( 1000)4:125/- spdooo) > 1 2 5 /- 1st June, 1966 20# ♦ 6d 30# ♦ 9 d 40# + 1 /- 50# + 1 /6d > Selling price is "The price declared by the manufacturer inclusive of Excise Duty at which cigarettes • ••• are 20th October, 1967 5# surcharge added to each category ordinarily sold retail.*1 29th April, 1968 5# surcharge discontinued but 3d surcharge per packet of 20 cigarettes added. EXPLANATORY NOTE W(1000) means "Weight of 1000 cigarettes" SPdOOO) means "Selling Price of 1000 cigarettes" Federal Official Gazettes (Supplement) for the respective years. less than 10% local leaf and at lOd per lb on those contain­ ing more than 10% but less than local leaf. This rate structure clearly showed the intention of government to encourage as much as possible, the use of locally grown tobacco as well as introduce progres sivity in the rates. It will be seen that even the heavier cigarettes (which, of course, are the higher quality ones) cointaining a higher percentage of local tobacco attrac lower duty / than poorer quality cigarettes containing a higher percent­ age of imported tobacco. However, this classification by 'origin of leaf' used was removed in April 19^0 (barely 11 months after the first levy) leaving only the weight classification. Furthermore, duties were changed to k/2 . per 1000 on cigarettes weighing not more than 3 lb per 1000 and 1/9 per lb on those weigh­ ing more than 3 lb per 1000. ̂ While this was equivalent to a slight reduction in the' case of cigarettes containing more than 90$ imported tobacco leaf, it was an increase of about 100$ in the case of those containing less than 90$ of impor­ ted tobacco leaf. However, these new rates lasted only 191 1. While these rates changes would be rightly seen as moti­ vated by a desire to raise higher revenue from cigarettes, the change in mode of classification would be seen as a means of simplifying the administration of the tax on cigarettes# However, since unmanufactured tobacco imported were subject to import duty, local tobacco used in the manufacture of cigarettes was still protected. ^5 months as, in October 19̂ -1, duties were increased generally by over 150% to 1 1/- per 1000 and *f/6 per lb respectively. In 19̂ +2, the mode of classification was changed again.^ Instead of weight per 1000, it now had to be price per 1000. Thus where ex-factory price exclusive of excise duti did not exceed 22/6 per 1000 duty v/as imposed at 2‘ L000 and where the price exceeded 22/6 per 1000 du- was imposed at 32/- per 1000. Because of the chang e mode of classification, it is difficult to say whether or not this was an increase over the former rates?" However, the mode c classification remained like this till 1951 but there were two partial increases in rate/sV. The first increase was in 19V5 when duty on cigarettes costing more than 22/6 per 1000 was increased to k k /6 from 32/-. The second came in 19^9 when the duty on the cheaper cigarettes was increased to 25/- per 1000 (from 23/-)* The adoption, in 19^2, of price as the basis of classification for excise purposes is seen to be important'in the sense that manufacturers would thereby be required to declare their prices for purposes of calculating duties payable. Thus, the change-over in 1951 from flat rate basis of ’excise levy to fdd valorem1 rate would not be difficult. lT Excise (Increase of duties) Order-in-Council No. 23 of 19̂ +2. 2. A proviso was added that where the weight of *f00 cigarettes was greater than 1 lb every pound would be deemed to be equal to ^00 cigarettes and duty would be levied accordingly. In that year, classification by weight per 1000 was restored and duty was levied on ’ad valorem1 basis. Cigarettes not weighing more than 21/2 lb per 1000 were taxed at k0% ad valorem while those weighing more than 2/2 lb per 1000 were taxed 30% ad valorem.^ Selling price was defined as the price declared by the manufacturer, inclusive of excise duty, at which the cigarettes v/ere sold by him ex-factory. If, however, it appeared to the Comptroller that the pric^ so declared was lower than it should be, then he could impute a price, (for — purposes of calculating the actual excise duty due) which would be equal to the manufacturAer’Ss cost of production plus profit (taken or to be take excise duty. The duty on cigarettes wwas made more progressive with quality when in 1956, cigarettes weighing not more than 21/2 lb were re-classifie d-Ajo cigarettes weighing not more than 2 lb per 1000 and cigarettes weighing more than 2 lb but not more than 21/a lb per 1 0 0 0 The former category was taxed at 30% ad valorem while the latter retained the former rate of k0% ad valorem. Price basis of classification was re-introduced in 1959 with respect to cigarettes weighing more than 2 lb but not more than 2/2 lb per 1000. Thus, this category of cigarettes was sub-divided into two - viz: those that cost not more 1. Excise Tariff Order, No. 32 of 1951 k7 than 70/- per 1000 and those that cost more than 70/- per 1000. The former retained the ad valorem duty while duty was increased on the latter to ad valorem. Thus there were four classes of cigarettes - those weighing not more than 2 lb per 1000, those weighing more than 2 lb but not more than 2/2 lb per thousand and (a) costing not more than 70/- per 1000 and (b) costing more than 7( 1000; and those weighing more than 2/2 lb per 1000. 'VThese were taxed at 30%, 4-0%, k8% and 50% respectively. This rate structure remained so till March 1966#' At the end of that month, the rates were increased t , ^5%, 33% and 33% respectively.^ Only two months after these increases, however, the whole tax structure on cigarettes was changed. 2 A combined weight and price base of classification was adopted in res­ pect of all the categories of cigarettes. Thus (a) Cigarettes weighing less thasn 1 lb and costing not more than ) 25/,- per 1000 were taxed at 20% ad valorem plus six pence per thousand; (b) those weighing not More than 21/ lb per 1000 and costing more than 25/- but not more than 50/- per 1000 were taxed at 30% plus 9d per 1000; (c) those weighing not more than 2/2 lb and costing more than 50/- but not more than 125/- per lT Excise Tariff (Duties and Exemptions) (No.l) Order, L.N. 2k of 9166. 2. Excise Tariff (Duties and Exemptions) (No.2) Order, L.N. k7 o f 1966. 48 1000 were taxed at k0% plus 1/- per 1000; and (d) those weigh­ ing more than 2}k lb and costing more than 125/- per 1000 were taxed at 50% plus 1/6 per 1000. Needless to say, this is a complicated and sophisticated structure which makes the tax on cigarettes progressive with quality. But, more remarkable a&out this change isT the re-definition of selling price to mean retail price^ rather than manufacturer's ex-factory price which it* had been. But for the reconstruction surcharge of 5% levied in 1967» which was replaced in 1968 by a surcharge of 3d per packet of 20 cigarettes, there has not been any alteration in the classi­ fication or rates of excise duty on cigarettes since 1966. It can be seen from the above that not only have the changes in rates structure been fairly frequent, they have been steadily re-modelled to reduce the tax liability on the low quality and cheap cigarettes, thus making the tax on cigarettes progressive with quality and price. Furthermore, the adoption of the retail price as the basis of levy marks a significant stage .in the development of excise taxation in Nigeria. T7 Excise Tariff (Duties and Exemptions) (No.^) Order, L.N. 110 of 1966 defined selling price as "the price declared by the manufacturer to be the price inclusive of excise duty at which cigarettes of the same brand, weight, quality and description are ordinarily sold retail." 49 Beer Excise duty was first imposed on beer, in 1949, and at a proportional rate based on the strength of beer.^ From Table 2.3, it can be seen that the base of calculation was ngallon of wort of specific gravity of 1055°", and this was subjected to a duty of l/3d per gallon* For any difference in gravity, the duty was to be calculated proportionally. The rate of duty was increased to l/9d per gallon in 1953 and 2/9d per gallon in 1956. These were increase^ of 40% and 120% respectively over the original rate. In 1959, the unit of calculation was changed to Gallon of Wort of gravity not more than 1040°, and duty was increa­ sed to a flat rate of 4/- per gallon. Additional degrees of gravity were taxed at Yzd per degree of gravity. The flat rate was raised in i960 to 5/6 per gallon, in 1962 to 6/8 and in 1964 (August) to 7/- per gallon. Thus by 1964 excise duty on beer, had gone up by about 6 times the first levy and was 175% of the 1959 legy. But for the 5% sur­ charge of 1967 which was removed in 1968 and replaced by a surdharge of 3/- per gallon, the rate of duty has remained as it was in 196..4. . Matches (See Table 2.4) Matches was first subjected to duty in April 1962 2 at a flat rate of 6/9 per gross boxes of not TI Excise (Duty on Beer) Resolution, No.3 of 19^9* 2. Excise Duties (Amendment) Order, L.N.26 of 1962. T A B L E 2.3 CHANGES IN LEV IE S ON BEER 5§ll2S_°l_Wort_of 5ill|£®S2§_iS_SE|Zi|Z gravity 10550 1949 1/3 Proportionally 1953 1/9 Proportionally 1956 2/9 Proportionally to 1040° 1959 v - S Yzd i960 5/6 Yzd 1962 Yzd 1964 (3rd Aug) y - V Yzd 1967 {October) 5% surcharge added 1968 (April) 5% surcharge removed and 3/- per gallon surcharge added. SOURCE: Federal Official Gazettes (Supplement) for the respective Years. T A B L E 2.4 * x = number of match sticks per box + Plus 5% reconstruction surcharge SOURCE: Federal Official Gazettes (Supplement) for the respective Years* 52 more than 80 sticks of match per box . This rate and mode of levy was sustained till August 1964 when the rate was increased to 12/- per gross boxed of not more than 80 sticks of match per box. In March 1966^, the mode of levy was changed to make the duty payable proportional to the number of match-sticks per box. Thus since the duty per gross boxes of 80 match sticks per box was still 12/-?, duty pay­ able on a gross box of 60 ma&ch sticks would, for example be x 12/- ■ 9/-. With this mode of levy, it was discovered that tax was being evaded by underdeclaring the number of match-sticks per box. If To obviate this the^jnode of levy was changed in 1968^. Thus, matches were classified into five groups on the basis of number of stick per match box, and each group was taxed per gross boxes. Thus (l) where a booklet contains not more than twenty matches, duty was imposed at 3/- per gross boxes. Where a booklet contains more than 20 matches, duty is to be calculated in proportion to twenty. (2) Where a box of matches contains not more than 40 matches, duty was imposed at 6/- per gross boxes. (3 ) Where a box contains more than 40 matches but not more than 60 matches, duty was1 1. Four booklets of twenty matches were taken to be equal to 1 box for purpose of calculating duty payable. 2. L. N. 92 of 1964. 3. L. N. 24 of 1966. 4. Offipial: Board of Customs and Excise. 5. L. N. 49 of 1968. 53 imposed at 9/- per gross boxes. (^) Where a box contains more than 60 matches but not more than 80 matches, duty was imposed at 12/- per gross box. (5) If 1 box contains more than 80 matches, duty is calculated in proportion to ^0 sticks. Specific Levies (Excluding levies on Beer and Matches) Up till 1963, all the excise levies (except the levies on cigarettes and Soap) were specific levies. Thus Beer, Matches, Sugar, Confectioneries and Lemonade and Aerated Waters were taxed on flat rates basis.. Since we have disc.' cussed changes in levies on Beer and Matches above, they will be excluded in what follows under this heading. As can be' seen from „T absle 1 2.5 in I96, 0 duties were imposed on sugar confeetioneries at 4d per lb and on Lemonade and Aerated Waters (soft drinks) at per gallon. For some of the reasons adduced above, sugar confectioneries was de-excised in December i960. However, excise duty on soft drinks remained at 1 /k d per gallon till 1963. In March i y 6 k the duty was reduced by half - bringing it to 8d per gallon. It was further reduced to 6d per gallon in 1965. However, Si/ - . . •. : the reconstruction surcharge imposed on it in 1963 was 2/~ per gallon* 1. This reduction was said to have been necessary because the import duty on sugar had been increased. See Festus Okotie-Eboh, Budget Speech delivered to Parlia­ ment, 1965. 3P2CIPIC LEVIES EXCLUDING _L^/IES_ C>’_ BEER_AND_ _ VATCHE* < P COMMODITY UNIT , 1960 . 1961 1962 1963 1 9 6 4 1965 ► 1966 196-r 1968® March August 3 d “2 r a r "2 s^cT £ a a £ a d £ s d £ s d C s d £ s d ' eT T --- It Confectioneries (Sugar) lb. . = 4 Removed _ s = 1 z = 2 Si Lemonade and Aerated 7/aters Pallor ,s 1 4 = 1 4 = 1 4 = = 8 _B = 0 S = 6 = = 6 s = 6 z = 6®» Cement = 15 = = 15 = Z 15 = 15 = 3 15 = 1 = a 4. Footwears Leather Pair » y = 3 = = 3 = Plastic Pair = = 6 = 1 = = 3 = Rubber end canvas Pair ♦♦« = 6 = 1 = s 1 = _ 6. Piece Goods:Interlock Fabrics and other knitted fabrics lb. / \ Y = = 3 = 2 = s 2 6 = 2 6 Z 2 6 S 2 6 Cotton Fabrics sq. yd. s " ' = = 2 = = 2 = 2 = 2 z = 2 = = 2W Others sq. yd. = = 6 = = 6 = 6 5 = 6 z = 6 = 6 X X X $1 Spirits. (Portable) Gallon 7 = = 7 = = = 2 6 2 6 z 2 6 Z 2 6 7. Apparels: Shirts Each = = 9 z = 9 _ Singlets Each ++= = 6 s = 6 Bt Nails, Barbed Wire, etc. lb. - = = i z = i B = i * i B * i Pt Pain t a ...... . lb. = = 2 z = @@2@ = 1 = 1 = 1 10. Oils: Gas or Diesel Gallon _ 1 9 1 9 z 1 9 S 1 9 Iluminating (Kerosene) Gallon z i = 1 = z 1 = z 1 » Lubricating Gallon z i = 1 * z 1 = z 1 = Motor spirit * 2.0% and 3% respectively. 1. Alternatively* if it appears to the Board that the price so declared is less than the cost of manufacture of the goods and all profits taken or to be taken in respect of the goods* duty would be levied on a sum which* in the opinion of the Board is equal to such cost with such profits. 61 There were no changes in the rates on the other commodities There were only two changes in 196? - (l) the rate of duty on biscuits was increased from 3% to 10# ad valorem and (2) the only new commodity - roofing sheets - on which excise duty was imposed, was taxed at 3% ad valorem. Thus, by 1967, 7 commodities were taxed at 5%t 7 at 10#, 2 at 20# and 2 at 331/$ ad valorem. In 1968, however, there were tremendous changes in the taxes. Apart from the fact that eleven of the twelve commo­ dities on which excise tax were newly imposed, were taxed at ad valorem rates, duties on 8 commodities were increased. Thus, Butter (and butter substitutes), Packing Containers, Cosmetics and perfumery, Woodens oand Metal Furniture, Immi- tation Jewellery, Mattresses etc. Ball Point pen\ Bicycle Tyre and Tube and socks were taxed at 10# ad valorem while Gramophone records and Electric bulbs were taxed at 5%» With regard to increases in duty, excise duties on £>oap products and detergent, Blanket, Corned Beef and Enamelware increased from 5$ to 10$. Similarly, duties on Towel and Towelling, Travelling trunks and bags, Pneumatic tyres and tubes and Metal Containers were increased from 10$ to 15$ ad valorem. There were no changes with respect to the other commodities. As a result of these changes, number of commodities 1. A"minimum amount of Id each was set in respect of Ball Point Pen. 62 subject to 5% tax fell to 5 while the number taxed at 10 rose to 1 7 . ^ commodities were taxed at 15$ and the number taxed at 20$ and 331/$ respectively remained at two each. Thus although rates of tax were fairly constant up till 1967, there had been substantial rise in rates in 1968. This, together with the various reconstruction surcharges that have been imposed on all excisable commodities since the latter part of 1967» shows an increasing resort by government to excise for revenue. Although excise tax was first fm|p%ed in Nigeria in 1939 (i.e. 30 years ago), its use by the government has, for a very long time (up till 19&3) been very limited to a very few (at most four) commoditi^lfT- -Developments in the economy which necessitated restrictions of imports also called for increas­ ing resort by the government to excise for revenue. Thus, since 196̂ -, there has been continuous expansion of the coverage of excise. In addition, although tax rates tended t largely constant between 196^ and 1967 on the new s dTitio. ions of excisable commodities, there were remarkable increases in the rates in 1968. Also, since 196^ there has been more emphasis on ad valorem basis of excise levies than flat rates. The ad valorem levies are based on manufacturer's ex-factory prices. But a remarkable stage has been reached by 63 the successful use of retail price as the base of ad valorem levy on cigarettes. Furthermore, the very rapid increase in the use of excise since 1964 has been influenced to a large extent, by the government's effort in 1964 to protect the Balance of Payments position and by the finance policies that has been made necessary by the outbreak of civil war in the 64 CHAPTBR 3 ADMINISTRATION One o f th e v e r y im p o r ta n t ‘ p r i n c i p l e s o f t a x a t i o n * to w h ic h , u n f o r t u n a t e l y , v e r y l i t t l e a t t e n t i o n i s u s u a l l y g i v e n i s e f f i c i e n c y i n a d m i n i s t r a t i o n o f t a x . A l l to o o f t e n one f i n d s t h a t p o l i c y m ak ers g e t to o p r e - o c c u p i e d w it h w h at t a x la w s t h e y w an t e n a c t e d , w h at r e v e n u e y i e l d to e x p e c t , o r w h a t ammendments o r a d d i t i o n s t h e y w a n t to th e e x i s t i n g t a x s t r u c t u r e , w it h o u t r e a l l y b o t h e r in g much a b o u t w h at a d e q u a te a d ju s tm e n ts s h o u ld b e made i n th e a d m i n i s t r a t i v e s e t up to cop e w it h th e ch a n g e s t h e y a r e e f f e c t i n g . The w o rth o f a n y t a x la w l i e s i n th e p o s s i b i l i t y o f i t s b e in g t r a n s m i t t e d i n t o r e a l i t y b y e n s u r in g c o m p lia n c e . T h is p o s s i b i l i t y w i l l depen d to a c o n s i d e r a b le e x t e n t on how e f f i c i e n t th e a d m i n i s t r a t i o n i s . W hat a d m i n i s t r a t i v e s e t up w i l l b e deemed a d e q u a te s h o u ld b e d e te r m in e d , n o t o n ly a g a i n s t th e b a c k g ro u n d o f a p a r t i c u l a r c o u n t r y , b u t a l s o d ep en d s on th e n a t u r e o f th e p a r t i c u l a r t a x . The q u e s t io n o f c o m p lia n c e t u r n s on how w e l l t a x p a y e r s u n d e r s ta n d th e la w ( i . e . how c l e a r th e la w i s ) , how much th e y r e s e n t th e t a x , and to w h a t e x t e n t th e a d m i n i s t r a t i v e m a c h in e r y i s 65 co m p e te n t to e n f o r c e th e la w . F o r a t a x a d m i n i s t r a t i o n to b eJ e f f i c i e n t t h e r e f o r e , p a r t i c u l a r a t t e n t i o n m u st b e g iv e n to th e q u e s t io n s o f c e r t a i n l y a s to w h a t, when an d who to p a y , an d how a d e q u a te th e a d m i n i s t r a t i v e o r g a n i s a t i o n i s f o r th e t a s k . O t h e r w is e , much room w i l l b e l e f t f o r e v a s io n an d a v o id a n c e w h ic h m ig h t d e f e a t th e p u rp o s e o f th e t a x . I t i s to t h e s e f a c t o r s we s h a l l l a r g e l y a d d r e s s o u r s e l v e s i n th e e x a m in a tio n o f e x c i s e t a x a d m i n i s t r a t i o n i n N i g e r i a . o T 1 . CERTAINTY A w e l l d r a f t e d la w f a c i l.iilt a t e s a d m i n i s t r a t i o n . W h ile i t i s w i t h i n th e p re m ise o f a l e g a l d rau g h tsm an to s a y how a la w s h o u ld b e d r a f t e d , c e r t a i n g u i d e l i n e s c a n b e p r e s c r i b e d . I t i s a b s o l u t e l y e s s e n t i a l t h a t t a x la w s h o u ld b e w r i t t e n and s e t o u t i n a w ay p o t e n t i a l t a x - p a y e r s w i l l c l e a r l y u n d e r s t a n d . H a v in g i n m ind t h a t p e o p le l i a b l e to p a y t a x a r e i n a l a r g e m easu re n o t v e r s e d i n la w an d m ig h t n o t b e a b le t o a f f o r t th e s e r v i c e s o f a l e g a l p r a c t i t i o n e r , o r an a c c o u n t a n t , a t a x lo a d e d w it h t e c h n i c a l l e g a l ja r g o n ca n o n ly c a u s e c o n f u s i o n . I t i s v i t a l t h e r e f o r e t h a t th e la w s h o u ld s e t o u t , i n c l e a r t e r m s , th e r i g h t s an d o b l i g a t i o n s o f t a x p a y e r s , a n d , o f c o u r s e , th e p e n a l t i e s t h e y in c u r f o r non­ c o m p lia n c e . I t s h o u ld , i n p a r t i c u l a r , l e a v e no d o u b t a s to w h a t, when an d who to p a y . 67 I n c e r t a i n c a s e s , th e B o a rd a l l o w s some f a c t o r i e s to p a y d u ly on t h e i r d e l i v e r i e s r a t h e r th an p r o d u c t io n f o r a m onth. S u ch in d u lg e n c e d o e s n o t i n a n y w ay o v e r r u l e th e o b l i g a t i o n to p a y a t th e r a t e o b t a in in g a t th e tim e o f m a n u fa c t u r e . T h e r e f o r e w h ere go o d s p ro d u c e d b e f o r e th e ch an ge i n t a r i f f re m a in e d i n s t o c k f o r some tim e a f t e r th e c h a n g e , th e p r i n c i p l e o f ’ f i r s t i n , f i r s t o u t ’ i s a p p l i e d i n c a l c u l a t i n g th e d u ty p a y a b l e . T h a t t h i s p r i n c i p l e s h o u ld b e a p p l i e d w as e s t a b l i s h e d i n 1965 when th e d u t y on p o r t a b l e s p i r i t s w as r e d u c e d fro m £ 7 p e r g a l l o n to 2 / 6 d p e r 1% o f a l c o h o l (a n e q u i v a l e n t o f a b o u t £ 5 p e r g a l l o n ) . A f t e r th e r e d u c t i o n , th e m a n u fa c t u r e r s , who e n j o y th e in d u lg e n c e o f p a y in g e x c i s e d u t y on t h e i r d e l i v e r i e s , p r o c e e d e d to p a y d u t y on th e s t o c k t h e y h ad b e f o r e th e ch an g e i n d u ty a t th e new r a t e . The B o a rd c a l l e d a t t e n t i o n to t h i s i r r e g u l a r i t y and th e manu­ f a c t u r e r s w e re made to p a y th e a c c u m u la te d d i f f e r e n c e b e tw e e n w h at w as due a t th e o l d r a t e an d w h a t w as a c t u a l l y p a i d i n r e s p e c t o f t h i s s t o c k . Th Tore one can s a y a t l e a s t t e n t a t i v e l y , t h a t th e la w q u a te m a c h in e ry f o r th e a s c e r t a in m e n t o f when e x c i s e i s w h at am ount i s d u e . And w h ere th e B o a rd e x e r c i s e s a d i s ­ c r e t i o n - a s to when a c t u a l p aym e n t i s to b e made - th e m a c h in e ry a d o p te d i s s u c h a s t o l e a v e no d o u b t i n th e m inds o f th e p a y e r s a s to when to p a y . 68 Who to p a y E x c i s e d u ty i s r e q u ir e d to b e p a i d b y a l l m a n u fa c tu r e r s o f e x c i s e d p r o d u c t s . A l l s u c h m a n u fa c tu r e r s a r e e x p e c t e d to o p e r a t e o n ly u n d er e x c i s e l i c e n c e i s s u e d b y th e B o a rd o f Custom s an d E x c i s e , b u i l d t h e i r p r e m is e s to a p a r t i c u l a r s p e c i f i c a t i o n to f a c i l i t a t e e x c i s e c o n t r o l and h a v e them e n t e r e d w it h th e B o a r d . ^ A4nd i t i s a c r i m i n a l o f f e n c e to s t a r t o r c o n tin u e to m a n u fa c tu re a n y p r o d u c t a f t e r i t h a s b e e n s u b j e c t e d to e x c i s e w it h o u t f i r s t s a t i s f y i n g t h e s e r e q u ir e m e n t s . H o w e ve r, i n r e s p e c t o f some c o m m o d itie s , c e r t a i n c a t e g o r i e s o f p r o d u c t s a r e exe m p ted . F o r exam p le th e la w s p e c i f i c a l l y exe m p ts to b a c c o m a n u fa c tu re d i n th e n a t i v e w ay fro m th e e x c i s e l e v i e s on to b a c c o p r o d u c t s . S i m i l a r l y , n a t i v e l i q u o r i s s p e c i f i ­ c a l l y exem p ted fro m th e b e e r an d w in e l e v i e s . T h e se e x e m p tio n s a p p l y o n ly to th e co m m o d ities i n d i c a t e d , and no o t h e r . And t h e r e i s now h ere i n th e e x c i s e law w h ere a n y m a n u fa c tu r e r o f e x c i s a b l e com m odity i s s p e c i f i c a l l y exem p ted fro m paym en t o f e x c i s e d u ty on a n y o t h e r g ro u n d . H o w e ve r, i t c o u ld b e a r g u e d t h a t th e u s e o f th e w ord ’ f a c t o r y * i n s e c t i o n 5 o f th e G e n e r a l E x c i s e R e g u l a t i o n s , I 9 6 0 '1' te n d s to g i v e 1, L .N . 1 1 4 o f I 9 6 0 69 an im p r e s s io n t h a t th e la w in t e n d s t h a t f a c t o r y u n i t s i n w h ic h l e s s th a n t e n p e o p le a r e em p lo ye d s h o u ld b e exem p ted fro m paym en t o f e x c i s e . S u ch argu m en t c o u ld o n ly b e b a s e d on th e g ro u n d t h a t a n o th e r g o vern m en t A c t , th e F a c t o r i e s O rd in a n c e 1 9 5 5 » d e f i n e s • F a c t o r y * a s ’’ a n y p r e m is e s i n w h ic h o r w i t h i n th e c l o s e o r c u t i l a g e o r p r e c i n t s o f w h ic h t e n o r more p e r s o n s a r e e m p l o y e d ............. f o r , o r i n c i d e n t a l t o ............. th e m aking o f a n y a r t i c l e ............. b e in g p r e m i s e ............. w i t h i n w h ic h th e w ork i s c a r r i e d on b y w ay o f t r a d e ............ " . I t s h o u ld b e p o in t e d o u t , h o w e v e r , t h a t s i n c e no r e f e r e n c e w as made to th e F a c t o r i e s O rd in a n c e i n th e i 960 e x c i s e r e g u l a t i o n s , th e m ere u se o f th e w ord f a c t o r y c a n n o t b e ta k e n a s a s t r o n g e v id e n c e o f an i n t e n t i o n o f th e g o v ern m en t to l i m i t l i a b i l i t y f o r e x c i s e o n ly to f a c t o r i e s e m p lo y in g te n o r more p e o p l e . I t i s t h e r e f o r e c e r t a i n t h a t , a p a r t fro m th e e x e m p tio n s m e n tio n e d a b o v e w it h r e s p e c t to to b a c c o an d b e e r , th e la w in t e n d s a l l m a n u fa c tu r e r s o f e x c i s a b l e co m m o d ities to p a y e x c i s e d u ty 1 . A d e q u a c y o f k n o w led g e o f th e t a x W h ile th e onus o f f i n d i n g o u t w h a t th e la w i s , i s on a n y manu­ f a c t u r e r o f e x c i s a b l e g o o d s , th e la w s h o u ld b e a d e q u a t e ly b r o u g h t to h i s n o t i c e i n th e s i m p l e s t fo rm p o s s i b l e . A s can b e s e e n i n c h a p t e r 1 1 , t h e r e h a v e b e e n many amendments to th e e x c i s e la w s an d 1. T h is i s d i s c u s s e d f u r t h e r b e lo w . S e e i n f r a p p . 97- I O I 70 t a r i f f s i n c e 1 9 5 8 * N o t i f i c a t i o n o f s u c h c h a n g e s i n th e l a w , o v e r th e y e a r s (a n d i n th e t a r i f f s i n c e 1 9 6 5 ) h a s b e e n done b y th e p u b l i c a t i o n o f o n ly th e i n d i v i d u a l amendments i n th e G a z e t t e . A s e x c i s e t a x a t i o n i s s t i l l i n a d e v e lo p in g s t a g e i n N i g e r i a , th e n e c e s s i t y to make f r e q u e n t a d ju s tm e n ts to th e m ain la w s an d t a r i f f to a d a p t them to c h a n g in g c o n d i t io n s c a n n o t b e d i s p u t e d . And i t i s n o t r e a s o n a b le to s u g g e s t t h a t th e w h o le la w s h o u ld b e r e p u b l i s h e d on e a c h o c c a s io n t h e r e i s an am endm ent. B u t th e f a c t t h a t no p e r i o d i c a l a tt e m p t i s made to r e - p u b l i s h th e w h o le l a w , a s am ended, i n s p i t e o f s e v e r a l am endm ents, m ig h t te n d to o b s c u r e im p o r ta n t ch a n g e s i n th e l a w . I t w o u ld seem r e a s o n a b le t h e r e f o r e t o s u g g e s t t h a t a l l th e la w s r e l a t i n g to e x c i s e and th e c o m p re h e n siv e t a r i f f , a s am ended, s h o u ld b e r e - p u b l i s h e d e v e r y y e a r o r a t l e a s t o n ce i n two y e a r s ( a s i s now b e in g done w it h im p o r ts t a r i f f ) . 2 . ADM3N The o .1 r e s p o n s i b i l i t y f o r th e m anagem ent o f e x c i s e i s i n th e hand th e B o a r d o f Custom s an d E x c i s e . The i n t e r n a l a r r a n g e ­ m ent o f th e B o a rd d e m a rc a te s t h r e e a r e a s o f r e s p o n s i l i t y v i z A d m i n i s t r a t i v e , T e c h n i c a l an d L e g a l , an d I n s p e c t o r a t e D i v i s i o n s . T h is i s shown i n C h a r t 3 b e lo w . The a d m i n i s t r a t i v e s e c t i o n d e a l s l a r g e l y w it h r e c r u it m e n t and o t h e r s t a f f m a t t e r s , a c c o u n ts an d s t a t i s t i c s w h ile th e I n s p e c t o r a t e 71 C H A R T 3 ORGANIZATION CHART FOR E X C IS E ADMINISTRATION 72 S e c t i o n , c o m p r is in g p r i n c i p a l l y o f Law and E co n o m ics g r a d u a t e s , c o n s t i t u t e s a w a tch d o g on th e o p e r a t i o n s o f o f f i c i a l s - p a r t i c u l a r l y o f th e T e c h n i c a l d i v i s i o n . The T e c h n i c a l and L e g a l d i v i s i o n i s r e s p o n s i b l e f o r a l l m a t t e r s r e l a t i n g to th e c o l l e c t i o n o f e x c i s e r e v e n u e fro m and th e p e n a l i s i n g ( f o r d e f a u l t i n g ) o f m a n u fa c t u r e r s . T h e re a r e f u r t h e r d e v o lu t i o n s o f f u n c t i o n s i n th e T e c h n i c a l d i v i s i o n . T h e re i s a t r a i n i n g s e c t i o n w h ic h i s r e s p o n s i b l e f o r t r a i n i n g new o f f i c e r s o f Custom s an d E x c i s e . I n s t r u c t o r s i n th e t r a i n i n g s c h o o l a r e p e o p le who h a v e h ad c o n s i d e r a b le e x p e r i e n c e i n , an d a r e v e r y c o n v e r s a n t w it h c h n i c a l i t i e s o f Custom s an d E x c i s e w o rk . T h e re i s a l s o th e t e r s s e c t i o n o f th e T e c h n i c a l d i v i s i o n . T h is can b e .o n a l l y d i v i d e d i n t o tw o . One su b ­ s e c t i o n c o n s i s t i n g o f h ig h r a n k in g o f f i c e r s who h a v e h ad c o n s i ­ d e r a b le e x p e r i e n c e i n th e f i e l d , a d v i s e s on t a r i f f and o t h e r i s s u e s o f p o l i c y r e l a t i n g to Custom s an d E x c i s e . The o t h e r su b ­ s e c t i o n c o - o r d i n a t e s th e w o rk o f th e v a r i o u s e x c i s e a r e a s . F u r th e r m o r e , t h e r e a r e f i e l d t e c h n i c a l o f f i c e r s fo r m in g th e t h i r d s e c t i o n o f th e t e c h n i c a l d i v i s i o n . T h e y a r e to a l a r g e e x t e n t r e s p o n s i b l e f o r s e e i n g t h a t m a n u fa c tu r e r s co m p ly w it h e x c i s e r e g u l a t i o n s made f o r th e c o n t r o l o f e x c i s e r e v e n u e , T h e y a r e su p o se d to make r e c o r d s d a i l y , o r a s f r e q u e n t l y a s i s 72 S e c t i o n , c o m p r is in g p r i n c i p a l l y o f Law and E co n o m ics g r a d u a t e s , c o n s t i t u t e s a w a tch d o g on th e o p e r a t i o n s o f o f f i c i a l s - p a r t i c u l a r l y o f th e T e c h n i c a l d i v i s i o n . The T e c h n i c a l an d L e g a l d i v i s i o n i s r e s p o n s i b l e f o r a l l m a t t e r s r e l a t i n g to th e c o l l e c t i o n o f e x c i s e r e v e n u e fro m an d th e p e n a l i s i n g ( f o r d e f a u l t i n g ) o f m a n u fa c t u r e r s . T h e re a r e f u r t h e r d e v o lu t i o n s o f f u n c t i o n s i n th e T e c h n i c a l d i v i s i o n . T h e re i s a t r a i n i n g s e c t i o n w h ic h i s rWe s p o n s i b l e f o r t r a i n i n g new o f f i c e r s o f Custom s an d E x c i s e . I n s t r u c t o r s i n th e t r a i n i n g s c h o o l a r e p e o p le who h a v e h ad c o n s i d e r a b le e x p e r ie n c e i n , an d a r e v e r y c o n v e r s a n t w it h th e t e c h n i c a l i t i e s o f Custom s and E x c i s e w o rk . T h e re i s a l s o th e H e a d q u a r te r s s e c t i o n o f th e T e c h n i c a l d i v i s i o n . T h is can b e f u n c t i o n a l l y d i v i d e d i n t o tw o . One s u b ­ s e c t i o n c o n s i s t i n g o f h ig h r a n k in g o f f i c e r s who h a v e h ad c o n s i - S d e r a b le e x p e r i e n c e i n th e f i e l d , a d v i s e s on t a r i f f an d o t h e r i s s u e s o f p o l i c y& r e l a t i n g to Custom s an d E x c i s e . The o t h e r su b ­ s e c t i o n c o - o r d i n a t e s th e w o rk o f th e v a r i o u s e x c i s e a r e a s . F u r th e r m o r e , t h e r e a r e f i e l d t e c h n i c a l o f f i c e r s fo r m in g th e t h i r d s e c t i o n o f th e t e c h n i c a l d i v i s i o n . T h e y a r e to a l a r g e e x t e n t r e s p o n s i b l e f o r s e e i n g t h a t m a n u fa c tu r e r s co m p ly w it h e x c i s e r e g u l a t i o n s made f o r th e c o n t r o l o f e x c i s e r e v e n u e , T h ey a r e su p o se d to make r e c o r d s d a i l y , o r a s f r e q u e n t l y a s i s 73 p r a c t i c a b l e , o f th e p r o d u c t io n o f m a n u fa c tu r e r s a s w e l l a s c h e c k c o n s i s t e n t l y th ro u g h s t o c k s an d o t h e r r e c o r d s t h e y m ig h t t h in k n e c e s s a r y to a s c e r t a i n th e c o r r e c t n e s s o f r e c o r d e d f i g u r e s . T h e se r e c o r d s a r e u s e d i n c h e c k in g th e c o r r e c t n e s s o f th e r e t u r n s o f m a n u fa c t u r e r s . O f f i c e r s o f t h i s s e c t i o n h a v e th e m o st f r e q u e n t c o n t a c t w it h m a n u fa c t u r e r s . The s e c t i o n , t h e r e f o r e , fo rm s th e c o r e o f e x c i s e c o n t r o l and th e l e v e l o f e f f i c i e n c y a t t a i n e d h e r e w i l l , to a l a r g e e x t e n t , d e te rm in e th e o v e r a l l l e v e l o f e f f i c i e n c y i n e x c i s e m anagem ent. I t i s t h e r e f o r e r e l e v a n t to e x p lo r e a l i t t l e f u r t h e r i n t o th e s t r u c t u r e and d e p lo y m en t o f p e r s o n n e l i n t h i s s e c t i o n . ...... The s t r u c t u r e and d e p lo y m e n t o f t e c h n i c a l p e r s o n n e l Column 1 1 o f T a b le 3 * 1 show s th e r e q u ir e m e n t s f o r em ploy­ m ent i n t o v a r i o u s c a d r e s i n th e h i e r a r c h y o f e x c i s e t a x a d m in i­ s t r a t i o n i n N i g e r i a . I t c a n b e s e e n t h a t th e h i g h e s t p o i n t a t w h ic h a n y b o d y can g e t on e x c i s e s t a f f i s a t th e l e v e l o f C o l l e c t o r . Though g r a d u a t e s a r e e m p lo y e d , f u r t h e r t r a i n i n g i s s t i l l u n d e r ta k e n . G r a d u a te s o f Law and E co n o m ics fo rm th e b u lk o f p e r s o n n e l a t t h i s l e v e l . E n t r y i n t o h i g h e r p o s t s i s b y p ro m o tio n b a s e d on e x p e r i e n c e . R e s p o n s i b i l i t y a t an d a b o v e th e c a d r e o f C o l l e c t o r c e n t r e s l a r g e l y a ro u n d s u p e r v i s i o n an d p o l i c y f o r m u la t io n . 74 T A B L E 3 , 1 HIERARCHY OF TECHNICAL PERSONNEL II C A D R E H O W A P P O I N T E D C o m p t r o lle r B y p ro m o tio n fro m g r a d e o f C h i e f C o l l e c t o r C h i e f C o l l e c t o r B y p ro m o tio n fro m g r a d e o f P r i n c i p a l C o l l e c t o r P r i n c i p a l C o l l e c t o r B y p ro m o tio n from g r a d e o f C o l l e c t o r ____________________________________________________ C o l l e c t o r ( 1 ) D i r e c t em ploym ent o f h o ld e r o f a p p r o p r i a t e U n i v e r s i t y D e gre e ( o r i t s e q u i v a l e n t ) p l u s , a t l e a s t , 1 y e a r t r a i n i n g i n th e t r a i n i n g s c h o o l and on th e j o b , OR ( 2 ) P ro m o tio n fro m G rad e o f A s s i s t a n t C o l l e c t o r G rad e I A s s i s t a n t C o l l ( 1 ) D i r e c t a p p o in tm e n t o f h o ld e r o f G rad e I q u a l i f i c a t i o n ab o ve W est A f r i c a n S c h o o l C e r t i f i c a t e p l u s a t l e a s t t h r e e Y e a r s t r a i n i n g i n th e t r a i n i n g s c h o o l an d on th e j o b ; (2) OR P ro m o tio n fro m g ra d e o f A s s i s t a n t C o l l e c t o r G rad e I I A s s i s t a n t C o l l e c t o r D i r e c t a p p o in tm e n t o f h o ld e r o f W est G rad e I I A f r i c a n S c h o o l C e r t i f i c a t e p lu s a t l e a s t t h r e e y e a r s t r a i n i n g i n th e t r a i n i n g s c h o o l and on th e jo b 75 B e lo w th e l e v e l o f C o l l e c t o r , c o n s i d e r a b le prem ium i s p l a c e d on s p e c i a l i s e d t r a i n i n g f o r th e jo b * Thus th e p e r i o d o f t r a i n i n g i s a s lo n g a s t h r e e y e a r s . D u rin g th e t r a i n i n g th e t r a i n e e s a r e made t o becom e f a m i l i a r w ith, p r o c e s s e s o f m a n u fa c tu r in g c e r t a i n e x c i s a b l e com m odites ( l i k e b e e r , c i g a r e t t e s , m a tch e s and s p i r i t s ) a s w e l l a s ta k e n th ro u g h s p e c i a l c o u r s e s i n a c c o u n t in g an d a r i t h ­ m e t ic ( p r o p e r l y a d a p t e d to s u i t e x c i s e w ork) . t e n s i t y o f t h i s t r a i n i n g i s n e c e s s a r y b e c a u s e i t i s th e A s s i s t a n t C o l l e c t o r s who a r e a c t u a l l y r e s p o n s i b l e fo : an d r e c o r d i n g p r o d u c t io n an d s t o c k p o s i t i o n s o f m a n u fa c t u r e r s . F o r p u rp o s e s o f p e r fo r m in g th e F i e l d f m o t i o n s , N i g e r i a i s .... . ..... . O y ' ^ v d i v i d e d i n t o f o u r e x c i s e a r e a ® ( c o i n c i d i n g w it h th e a d m i n i s t r a t i v e d i v i s i o n f o r Custom c o n t r o l ) v i z - ( 1 ) N o rth e rn a r e a , e x t e n d in g fro m th e n o rth e rn m o st p a r t o f th e o l d N o r th e r n R e g io n an d e x t e n d in g s o u th o f R i v e r s N i g e r an d B e n u e ; ( 2 ) C e n t ra l, a r e a w h ich c o i n c i d e s w it h th e M id -W e st S t a t e ; (3) E a s t e r n a r e a c o n s i s t i n g o f th e o l d E a s t e r n R e g io n an d e x t e n d in g n o r t h t o R i v e r B e n u e , an d 1 1 . B y M arch 1 9 6 4 ” th e p o s i t i o n h ad b een r e a c h e d w here e v e r y new e n t r a n t i n t o th e D e p artm en t o f C ustom s and E x c i s e r e c e i v e d one fo rm o f t r a i n i n g o r a n o th e r b e f o r e a ssu m in g d u t y " - C h i e f F e s t u s O k o tie -E b o h ; " N a t i o n a l B u d g e t 1 9 6 V » 76 ( 4 ) W e ste rn a r e a i n c l u d i n g th e o l d W e ste rn R e g io n an d L a g o s T e r r i t o r y , e x t e n d in g n o r t h to R i v e r N i g e r and e a s t to th e M id -W e st S t a t e b o r d e r . A s c a n b e s e e n i n T a b le 3 * 2 th e t o t a l number o f e x c i s e f a c t o r i e s i n th e c o u n t r y w as 1 3 2 i n 1 9 6 6 , 1 3 2 i n 1 9 6 7 and 267 i n 1968 . O f t h e s e , W e ste rn a r e a a lo n e h ad 6 8 , 70 and 1 8 5 r e s p e c ­ t i v e l y ^ . Thus W e s te rn a r e a h ad 5 1 « 5 ^ » an d 70% o f t o t a l e x c i s e f a c t o r i e s i n th e r e s p e c t i v e y e a r s . T h is show s a h ig h c o n c e n t r a t io n o f e x c i s e f a c t o r i e s i n th e W e ste rn a r e a . I t s f e a t u r e can c o n se ­ q u e n t ly b e ta k e n t o b e r e a s o n a b l y r e p r e s e n t a t i v e o f a l l * We s h a l l t h e r e f o r e l i m i t o u r e x a m in a tio n o f d e p lo y m e n t o f t e c h n i c a l p e r ­ s o n n e l to th e W e ste rn A r e a . T h e re w e r e , i n 1 9 6 8 , a l t o g e t h e r 185 e x c i s e f a c t o r i e s i n th e W e s te rn a r e a . T h e se w e re l a r g e l y c o n c e n t r a t e d i n two a r e a s : A p ap a and I k e j a . T h e se two a r e a s h ad 80 an d 69 e x c i s e f a c t o r i e s r e s p e c t i v e l y . A p ap a a r e a , i n o u r c l a s s i f i c a t i o n , c o v e r s L a g o s a r e a , A p ap a an d E b u t e - M e t t a w h ile I k e j a a r e a c o v e r s a r e a s a ro u n d P alm G r o o v e , I k e j a and Y a b a . The r e m a in in g t h i r t y s i x a r e d i s t r i ­ b u t e d o v e r a v e r y w id e g e o g r a p h i c a l a r e a w it h one a t Ik o r o d u , two a t E w e k o ro , t h r e e a t A b e o k u ta , f o u r a t I j e b u , tw e n ty a t I b a d a n , two a t I l o r i n and one e a c h a t O gbom oso, I l e s h a , I k a r e and Owo. 1 B o a rd o f Customs and E x c i s e 77 T A B L E 3.2 CHANGES IN NO. OP E X C IS E FACTORIES 1966-1968 W e ste rn N o r th e r n E a s t e r n s C e n t r a l Y e a r T o t a l A r e a A r e a A r e a A r e a 1 9 6 6 68 f o r th e f i r s t s i x m onths o f 1 9 6 7 > a m o n th ly a v e r a g e o f 1 4 . 7 / 2 o f m o n th ly r e v e n u e c o l l e c t e d w as i n d e f a u l t . T h is p e r c e n t a g e r o s e to an a v e r a g e o f 2 2 .2 % •ivn Hth e f i r s t s i x m onths o f 1 9 6 8 . T h is shows * t h a t th e r a t e o f t a x d e lin q u e n c y i s i n c r e a s i n g . P a r t o f th e amount shown to b e i n a r r e a r s in c lu d e d am ounts w h ic h h a v e b e e n a c c u m u la te d f o r o v e r two m onths ( t h e minimum p e r i o d a f t e r w h ic h , a s we h a v e shown e a r l i e r , s a n c t i o n s h o u ld b e l e v i e d ) w it h o u t a n y s a n c t i o n h a v in g b e e n l e v i e d . F u r th e r m o r e , a s can b e 1 1 . T h is w o u ld b e p a r t i c u l a r l y a v e r s e to th e g o v e r n m e n t 's p o l i c y o f e n c o u r a g in g o b s o r p t io n o f in d ig e n o u s la b o u r i n t o th e i n d u s t r i a l s e c t o r . S e e : I n f r a , p p . 1 4 7 - 1 4 9 94 T A B L E 3.3 ARREARS OF EXCISE TAX REVENUE 196? &"l95g C 1 9 6 7 1 9 Z A 0 N T H ARREARS* T o ta l+r : ARREARS*T o ta l - Revenue Amount % o f Revenue C o lle c te d £ '0 0 0 T o ta l C o lle c te d Amount % o f Revenue £ * 0 0 0 T o ta l Revenue Jan u ary 3 , 4 0 3 4 2 3 1 2 . 4 ^ 1 , 4 1 1 5 9 3 4 2 . 0 Feb ru ary 2 , 9 3 3 3 9 9 1 , 7 1 8 3 3 2 1 9 . 3 A March 3 , 4 7 0 6 5 1 ' X 1 3 . 8 1 , 3 9 0 2 1 9 1 5 . 8 A p r i l 3 , 1 5 2 442 1 4 . 0 1,6 4 2 2 5 8 1 5 . 7 May 2 , 8 8 5 , 542 1 8 . 8 1 , 5 4 1 369 2 3 . 9 June 2 , 4 5 2 2 1 1 8 . 6 2 , 4 2 3 3 9 7 16 .3 S o u rce s: + C e n tra l Bank o f N ig e r ia , F ig u re s su p p lied to the Bank b y the Board o f Customs and E x c is e * Board of Customs and Excise ARREARS OF EXCISE TAX REVENUE ' 1# ? . A IM S o u rce s: + C e n tra l Bank o f N ig e r ia , F ig u re s su p p lied to the Bank b y the Board o f Customs and E x c is e * Board of Customs and Excise 95 s e e n from T a b le 3 * 4 (w h ic h shows th e am ounts o f e x c i s e d u t i e s owed b y some co m p an ies p r o d u c in g e x c i s a b l e p r o d u c t s on th e p o i n t o f l i q u i d a t i o n ) a r r e a r s o f e x c i s e d u t i e s a r e o c c a s i o n a l l y a llo w e d to a c c u m u la te to am ounts w h ic h e x c e e d th e b o n d / c a s h s e c u r i t y and t o t a l v a lu e o f th e a s s e t s o f th e com pany. 4 I n f a c t , up t i l l M arch 1 9 6 7 , u n r e c o v e r e d d u t i e s s t i l l owed i n r e s p e c t ! o f s i n g l e t s w as £ 8 , 6 5 7 i n th e W e ste rn r e s p e c t o f fo o tw e a r, was £ 19 ,0 0 0 in the Northern A re a . These prod u cts were d e -e x c is e d as f a r back as August 19 6 5 . One would e x p e c t t h a t th e n e c e s s a r y p e n a l t y re b e e n im p o sed lo n g b e f o r e 1 9 6 7 * The f a c t s o f the re c e n t case o f the "Board o f Customs and E x c is e ve rsu s T e ch n o -fle x Company L t d . a l s o show t h is d e la y , b y th e d e p a rtm e n t o f C ustom s and E x c i s e to re p rim a n d t a x d e l i n ­ q u e n c y . I n t h a t c a s e , T e c h n o - f l e x Company L t d . w a s , a l l e g e d l y , c o n s i s t e n t l y e v a d in g p aym ent o f e x c i s e d u t y . The a l l e g a t i o n was n o t i n v e s t i g a t e d u n t i l J a n u a r y 1 9 6 7 (a b o u t 1 5 m onths a f t e r th e p r o d u c t o f th e company - p l a s t i c fo o t w e a r - w as d e - e x c i s e d i ) . B u t th e c a s e d id n o t a c t u a l l y come up i n c o u r t u n t i l J u l y 1 9 6 9 (a b o u t 2|- y e a r s a f t e r th e i n v e s t i g a t i o n ! ! ) . 1 S e e : "Company sued fo r £ 2 4 ,0 0 0 - Customs claim e x c is e d u ty "; D a ily Times o f N ig e r ia . Satu rd ay 2 6 t h J u l y 1 9 6 9 96 TABLE 3 . 4 ARREARS OWED BY COMPANIES IN VOLUNTARY LIQUIDATION ACCUMULATED AMOUNT ARREARS REALISED FACTO RIES FROM SALE £ £ £ ^ P o ljm e r a I n d u s t r i e s 9 , 5 6 5 6 8 1 8 >8 8 if L im it e d J a b r . B r o t h e r s 4 , 9% - 4 3 3 3 U t r i l o n ( N i g e r i a ) L im it e d 4 9 9 4 9 9 mm W est A f r i c a n I n d u s t r i a l 1 , 4 7 6 5 0 7 969 V e n t u r e s / v S i r a I n d u s t r i e s 236 1 2 0 1 16 J 2 _ “ ______________ Source: Board of Customs and Excise 97 T h is l a x i t y i n im p o sin g s a n c t i o n on e x c i s e t a x e v a d e r s (a n d o t h e r e x c i s e t a x d e f a u l t e r s ) i s d e f i n i t e l y i n c o n s i s t e n t w ip h th e s t r a t e g y o f c o n t r o l (a d o p te d w it h r e s p e c t to m a j o r i t y o f th e e x c i s e f a c t o r i e s ) w h ic h p l a c e s much r e l i a n c e on th e h o n e s t y o f t a x p a y e r s . A more c o n s i s t e n t and co m p re h e n siv e s y ste m o f c o n t r o l , w h e re b y r e c o r d s o f p r o d u c t io n o f a l l th e e x c i s e f a c t o r i e s w o u ld b e ta k e n d a i l y '1’ , w o u ld w ork b e t t e r . I t w o u ld , f o r e x a m p le , r e d u c e th e c h a n c e s o f e v a s io n and th u s l e a v e l e s s f o r l e g a l s a n c ­ t i o n s to a c c o m p lis h . A l s o , t a x p a y e r s c o m p lia n c e s h o u ld b e more f i r m l y demanded b y prom pt an d open im p o s it i o n o f s a n c t i o n s on e v a d e r s so a s n o t to g i v e an im p r e s s io n t h a t th e t a x i s n o t b e in g e f f e c t i v e l y e n f o r c e d . F u r th e r m o r e , a s y ste m o f r e g u l a r i n t e r ­ f a c t o r y t r a n s f e r s s h o u ld b e a d o p te d a s a b u i l t - i n d e v i s e to c h e c k e v a s io n made p o s s i b l e b y d i s h o n e s t c o l l u s i o n b e tw e e n t a x ­ p a y e r an d t a x o f f i c i a l . b . A d m i n i s t r a t i v e c o n d i t io n s f o r l i c e n c i n g A s we h a ve p o in t e d o u t e a r l i e r , th e la w e n g i s a g e s a l l f a c ­ t o r i e s p r o d u c in g e x c i s a b l e goo d s ( e x c e p t th o s e s p e c i f i e d i n th e c a s e o f to b a c c o an d b e e r ) s h o u ld b e l i a b l e f o r th e p aym ent o f 1 . The p ro b le m s o f r e l a t i n g a d m i n i s t r a t i v e c o s t to r e v e n u e y i & l d ( e s p e c i a l l y on s m a ll e s t a b l is h m e n t s ) u n d e r su ch a s y s te m o f c o n t r o l i s d i s c u s s e d l a t e r . S e e : I n f r a p . p p / o s 98 e x c i s e t a x . B u t th e B o a r d , o s t e n s i b l y f o r a d m i n i s t r a t i v e r e a s o n s a d o p te d , i n I 9 6 0 , th e f a c t o r i e s A c t d e f i n i t i o n o f ’ f a c t o r y * to r e q u i r e t h a t l i a b i l i t y f o r paym en t o f e x c i s e d u ty on so ap w o u ld b e l i m i t e d o n ly to f a c t o r i e s e m p lo y in g te n o r more p e r s o n s i n m anu al la b o u r . S i n c e so ap w as d e - e x c i s e d i n 1 9 6 1 , t h e r e h a s n o t b e e n a n y su c h c r i t e r i o n s p e c i f i c a l l y l a i d down to s e t a l i m i t to f a c t o r i e s w h ic h s h o u ld b e l i a b l e f o r o r exem p twed fro m e x c i s e d u t i e s . H o w e ve r, a p a r t fro m m a n u fa c tu r e r s who v o l u n t a r i l y r e g i s t e r f o r e x c i s e l i c e n c e , th e s y ste m w h e re b y f a c t o r i e s m a n u fa c tu r in g e x c i s a b l e com m odites g e t in c lu d e d i n th e e x c i s e t a x l i s t i s su c h t h a t m ig h t make i t p o s s i b l e f o f some f a c t o r i e s to e s c a p e p aym en t o f e x c i s e d u t y . T h is s y s te m (w h ic h we w e re a b le to e s t a b l i s h i s a d o p te d fro m o u r d i s c u s s i o n s w it h to p o f f i c i a l s o f th e M i n i s t r y o f F in a n c e and th e B o a rd o f Custom s and E x c i s e ) , r e l i e s v e r y /r, much on w h at a to p o f f i c i a l o f th e M i n i s t r y o f F in a n c e d e s c r i b e d a s th e s t r a t e g y o f " g i v i n g th e c a r r o t an d th e n a p p l y i n g th e s t i c k " . U nder th e s y s t e m , r e l i a n c e i s p l a c e d on th e v a r i o u s con ­ c e s s i o n a r y r a t e s o f im p o rt a n d / o r e x c i s e d u t i e s ( t h e c a r r o t ) to in d u c e m a n u fa c tu r e s o f e x c i s a b l e p r o d u c t s to r e g i s t e r f o r e x c i s e l i c e n c e . T h u s , u n d e r th e A p p ro v e d U s e r Sch em e, th e M i n i s t r y o f I n d u s t r i e s w o u ld n o t i s s u e a l i c e n c e to a n y m a n u fa c tu r e r o f e x c i s a b l e com m odity to o b t a in h i s in p u t s a t c o n c e s s io n a r y r a t e s 99 o f im p o r t a n d / o r e x c i s e d u ty (w h ere a p p l i c a b l e ) u n l e s s he p o s s e ­ s s e s a c u r r e n t e x c i s e l i c e n c e . ^ A l s o , b y S c h e d u le 2 to th e 2 E x c i s e T a r i f f A c t , 19 65 , go o d s to b e u se d ” i n th e m a n u fa c tu re o f o t h e r e x c i s a b l e p r o d u c t ” a r e exem p ted fro m d u t y . I t i s c l e a r fro m t h i s t h a t o n ly m a n u fa c tu r e r s o f su c h f i n a l p r o d u c t s who a r e r e g i s t e r e d w it h th e B o a rd o f Custom s and E x c i s e w o u ld b e a b le to e n j o y t h i s f a c i l i t y . The s t r a t e g y t h e r e f t h a t a n y m anu- f a c t u r e r who s e e k s to e n j o y t h e s e c o n c e s s w o u ld f i r s t h a v e to r e g i s t e r w it h th e B o a r d . I n a d d i t i o n to t h i s , some l i a s ;s b e tw e e n th e M i n i s t r y o f F in a n c e an d th e M i n i s t r y o f I n d u s t r i e s w h e re b y i t becom es p o s s i b l e f o r th e l a t t e r t o f i n d o u t m a n u fa c tu r e r s o f e x c i s a b l e p r o d u c t s and th u s g e t them to r e g i s t e r w it h th e B o a r d . A n y i n f o r ­ m a tio n w h ic h th e M i n i s t r y o f I n d u s t r i e s can g i v e w i l l , h o w e v e r, b e i n r e s p e c t o f o n ly f a c t o r i e s i n w h ic h te n o r more p e o p le a r e em plo yed s i n c e th e M i n i s t r y c o m p ile s l i s t o f f a c t o r i e s o f t h i s s i z e o n l y . U n f o r t u n a t e l y , e ve n i n t h i s r e s p e c t , th e M i n i s t r y o f A . 0 . P h i l l i p s ; o p . c i t p . 3 2 4 Op c i t j S e e s u b -it e m 2 o f ite m ? • 100 I n d u s t r i e s c a n n o t c la im t h a t i t s in fo r m a t io n i s u p - t o - d a t e . O b v i o u s ly , th e s e m eans o f g e t t i n g e x c i s e f a c t o r i e s on th e t a x l i s t w o u ld b e s u f f i c i e n t to ta k e c a r e o f i n d u s t r i e s w here th e t y p i c a l s i z e o f th e f a c t o r y i s l a r g e . B u t i n c a s e o f i n d u s t r i e s w here th e t y p i c a l s i z e o f th e f a c t o r y i s s m a l l , an d i n w h ich t h e r e i s a p re p o n d e ra n c e o f in d ig e n o u s c r a ft s m e n o p e r a t i n g i n a s m a ll f a c t o r y u n i t s , ( e . g . s o a p , s i n g l e t s , f o o t w e a r , f u r n i ­ t u r e , m a t t r e s s e s and l e a t h e r b a g i n d u s t r i e s )l t-chne mj eans w o u ld b e in a d e q u a t e . T h is in a d e q u a c y a r i s e s o u t o f th e f a c t t h a t many o f th e p r o d u c e r s i n th e s e i n d u s t r i e s n e i t h e r r e g i s t e r w it h th e M i n i s t r y o f I n d u s t r i e s n o r s e e k c o n c e s s io n s e i t h e r ( a ) b e c a u s e t h e y a r e ig n o r a n t o f su c h c o n c e s s i o n s , o r (b ) b e c a u s e t h e y w o u ld b e w o rse o f f i f t h e y h a v e to p a y e x c i s e t a x on th e f i n i s h e d jp> p r o d u c t th a n on th e in p u t , o r ( c ) b e c a u s e t h e y w an t to a v o i d th e p r y i n g e y e s o f th e t a x o f f i c i a l . 1 . The M i n i s t r y o f I n d u s t r i e s i t s e l f r e c o g n i s e s th e s h o rtc o m in g s o f i t s m ethods o f c o m p ilin g l i s t o f m a n u fa c tu r e r s an d ca u ­ t i o n e d i n th e 19 & 7 I n d u s t r i a l D i r e c t o r y t h a t " t h e r e i s no fo r m a l m ethod b y w h ic h ch a n g e s i n company s t a t u s a r e communi­ c a t e d to th e M i n i s t r y " an d t h a t " i t i s p o s s i b l e t h a t some in fo r m a t io n i s n o t u p - t o - d a t e o r t h a t co m p an ies e x i s t w h ic h h a v e b e e n o v e r lo o k e d . S e e : I n d u s t r i a l D i r e c t o r y . 4 t h E d i t i o n 1 9 6 7 ; p u b l is h e d f o r th e F e d e r a l M i n i s t r y o f I n d u s t r i e s , [L a g o s , N a t i o n a l P r e s s L t d . ^ p . l . 2 . I f f o r e x a m p le , th e amount o f ( im p o r t a n d / o r e x c i s e ) d u ty t h a t th e m a n u fa c tu r e r h a s to p a y on th e in p u t s r e q u i r e d to make a u n i t o f th e f i n a l o u t p u t i s g r e a t e r th a n th e e x c i s e d u ty he w o u ld o t h e r w is e b e r e q u i r e d to p a y on t h a t u n i t o f f i n a l o u t p u t , he w o u ld p r e f e r p a y in g d u ty on th e in p u t to p a y in g e x c i s e d u t y on th e f i n a l o u t p u t . 101 The r e s u l t i s t h a t i s a common f e a t u r e o f th e s e i n d u s t r i e s t h a t many o f th e f a c t o r i e s re m a in o u t s i d e th e t a x n e t . T h is i s e v id e n c e d b y th e f a c t t h a t ( i n L a g o s and Ib a d a n f o r e x a m p le ) , a c o n s i d e r a b le number o f f u r n i t u r e f a c t o r i e s , (w h ic h a r e eve n s i t u a t e d a lo n g th e h ig h w a y s ) a r e n o t o p e r a t i n g u n d er e x c i s e l i c e n c e . And a lm o s t i n v a r i a b l y , th e s e f a c t o r i e s p ro d u c e f u r n i ­ t u r e o f v e r y h ig h q u a l i t y , a n d , i n many c a s e s , on a s l a r g e a s c a l e ( o f em ploym ent a n d / o r o u t p u t) a s some o f th e f a c t o r i e s o p e r a t i n g u n d er e x c i s e l i c e n c e . SUMMARY AND CONCLUSIONS: o From th e f o r e - g o i n g , one a r r i vrees a t th e i n e v i t a b l e c o n c lu s io n t h a t th e a d m i n i s t r a t i o n o f e x c i s e i n N i g e r i a m akes th e t a x lo o k v e r y much l i k e a t a x o f " h o n e s t y and b i g n e s s " . T h is c o n c lu s io n stem s fro m th e a d o p tio n o f m a n u fa c t u r e r ’ s e x - f a c t o r y p r i c e a s b a s e o f a d v a lo re m l e v i e s , th e s y ste m b y w h ic h m a n u fa c tu r e r s o f t a x e d co m m o d ities a r e in c lu d e d on th e t a x l i s t , and th e s t r a t e g y o f c o n t r o l a d o p te d . We h a v e shown ab o ve t h a t b a s i n g a d v a lo re m l e v i e s on manu­ f a c t u r e r ' s e x - f a c t o r y p r i c e g i v e s much room f o r t a x a v o id a n c e . And we h ave s u g g e s t e d t h a t th e mode o f l e v y s h o u ld b e ch an g ed to a com bined f l a t and a d v a lo re m r a t e s s t r u c t u r e o r b e b a s e d on r e t a i l e r ' s s e l l i n g p r i c e a s i s b e in g done now w it h c i g a r e t t e s . H o w e ve r, th e s u c c e s f u l a p p l i c a t i o n o f th e l a t t e r mode o f l e v y 102 w i l l depend v e r y much on th e p o s s i b i l i t y o f a r e s a l e p r i c e m ain­ te n a n c e i n th e N i g e r i a n m a r k e t. A t th e moment, many m a n u fa c tu r e r s i n N i g e r i a n e i t h e r u n d e r ta k e th e r e t a i l i n g o f t h e i r p r o d u c t s n o r c o n t r o l th e p r i c e s a t w h ic h t h e i r p r o d u c t s a r e s o l d r e t a i l . How­ e v e r , th e c o n s i d e r a b le m easu re o f s u c c e s s i n r e s a l e p r i c e m ain­ te n a n c e n o t i c e a b l e w it h r e s p e c t to c i g a r e t t e s ( a s u c c e s s w h ic h i s v e r y l a r g e l y a t t r i b u t a b l e to w id e a d v e r t is e m e n t o f p r i c e and e f f e c t i v e c o n t r o l o f p r i c e p o l i c y a t w h o le s a l in g s t a g e ) w o u ld g i v e th e im p r e s s io n t h a t i t w o u ld s u c c e e d w it h o t h e r p r o d u c t s i f th e m a n u fa c tu r e r s c o - o p e r a t e . I t h a s a l s o b e e n shown ab ove t h a t th e m ethod w h e re b y f a c t o ­ r i e s g e t in c lu d e d i n th e e x c i s e t a x l i s t g i v e s room f o r many f a c t o r i e s b e in g l e f t o u t s i d e th e e x c i s e t a x n e t . T h is p ro b le m i s n o t e x p e r ie n c e d w it h r e s p e c t to p r o d u c t s n o r m a lly m an u factu red , o n ly i n b i g f a c t o r i e s b u t i t a p p e a r s to b e a common f e a t u r e w it h r e s p e c t to p r o d u c t s w h ic h can b e m a n u fa c tu re d i n f a c t o r y u n i t s o f v a r y i n g s i z e b y a n y s t a n d a r d o f m e asu rem en t. And i n some c a s e s , e s p e c i a l l y w h ere th e s i z e o f th e f a c t o r y i s t y p i c a l l y s m a l l , t h i s n o n -c o m p lia n c e i s so much and so open a s to g i v e an im p r e s s io n t h a t th e t a x i s n o t b e in g e f f e c t i v e l y e n f o r c e d .^ 1 1 . Ans a s p o in t e d b y J . F . D ue, "N o th in g d e s t r y t a x p a y e r m o ra le so q u i c k l y a s th e b e l i e f t h a t t a x e s a r e n o t e f f e c ­ t i v e l y e n fo r c e d S e e "R e q u ire m e n ts o f a t a x s t r u c t u r e i n a D evelo p m en t E c o n o m y ." B i r d and Oldm an; o p . c i t . p . 36 103 I n l i g h t o f th e c h a r a c t e r i s t i c s o f th e s e s m a ll f a c t o r i e s one w o n d ers i f a b e t t e r s y ste m c o u ld b e e v o lv e d to f o r c e them to co m p ly . The p r o p r i e t o r s o f many o f t h e s e f a c t o r i e s , f o r l a c k o f s u f f i c i e n t c a p i t a l , o p e r a t e i n sh e d s and open s p a c e s , and ca n n o t d e f i n i t e l y a f f o r d to b u i l d a f a c t o r y to th e s p e c i f i c a t i o n r e q u i r e d b y th e e x c i s e la w f o r e x c i s e c o n t r o l ‘p u t s o f many o f them a r e v e r y s m a ll to j u s t i f y th e co a c t i o n . The p r i n c i p l e o f econom y o f c o l l e c t i o n w o u ld t h e r e f o r e j u s t i f y th e ex e m p tio n o f su c h f a c t o r i e s . T h is r a i s e s th e p ro b le m o f s e t t i n g a c r i t e r i o n on w h ic h b a s i s a d i v i d i n g l i n e c o u ld be drawn. The d i v i d i n g l i n e c o u ld b e b a s e d on a d e f i n i t e s t a n d a r d o f m easu rem en t - c a p i t a l e m p lo ye d , u n i t s o f p r o d u c t io n , o r la b o u r e m p lo ye d . A lth o u g h none o f th e s e c r i t e r i a w o u ld p r o v id e a f o o l ­ p r o o f b a s i s a g a i n s t e v a s io n and a v o id a n c e , a d o p t in g e i t h e r o f them w i l l a t l e a s t e n s u re c o n s i s t e n c y . W ith r e s p e c t to c a p i t a l em plo yed and u n i t s o f p r o d u c t io n b a s e s , much w i l l s t i l l depend on th e h o n e s t y o f th e t a x p a y e r s and i t m ig h t b e d i f f i c u l t to d is p r o v e d i s h o n e s t d e c l a r a t i o n o f c a p i t a l em plo yed o r a v e r a g e ( d a i l y / m o n t h l y / y e a r l y ) q u a n t i t y p r o d u c e d . S e t t i n g th e d i v i d i n g l i n e on th e b a s i s o f number o f p e o p le em plo yed p r o v id e s a p p r o x im a t e ly th e m o st d e f i n i t e and c o n s i s t e n t c r i t e r i o n . I t s h o u ld b e r e a l i s e d h o w e v e r, t h a t la b o u r r e q u ir e m e n t s 104 f o r p r o d u c t io n o f co m m o d ities depend on th e p r e v a i l i n g m ethods o f p r o d u c t io n i n th e p a r t i c u l a r i n d u s t r i e s . The minimum la b o u r r e q u ir e m e n t s h o u ld t h e r e f o r e b e s e t f o r e a c h p r o d u c t h a v in g r e g a r d f o r th e p e c u l i a r i t i e s o f th e p r e v a i l i n g m ethod o f p r o ­ d u c t io n i n th e i n d u s t r y . T h is c r i t e r i o n can b e su p p le m e n te d b y a c o n c e s s io n a r y r a t e s t r u c t u r e on th e ta x e d in p u t s w h ich e n s u r e s t h a t th e im p o rt a n d / o r e x c i s e d u ty r e q u i r e d to b e p a i d on th e com m odity in p u t s p e r u n i t o f f i n a l o u t p u t i ' l e a s t e q u a l to th e e x c i s e d u ty t h a t w o u ld h ave b e e n due on th e u n i t o f f i n a l o u t p u t . F u r th e r m o r e , i n a d d it io n to th e c l o s e l i a s o n w it h th e M i n i s t r y o f I n d u s t r i e s , th e B o a rd s h o u ld r e g u l a r l y u n d e r ta k e a s u r v e i l l a n c e o f th e i n d u s t r i e s to e n s u r e t h a t th e e x c i s e t a x l i s t i n c l u d e s a l l th e m a n u fa c tu r e r s t h a t s h o u ld , a c c o r d in g to th e c r i t e r i o n s e t , p a y th e t a x . A s to s t r a t e g y o f c o n t r o l , we h a v e shown a b o v e : ( l ) t h a t w h ere o f f i c e r s a r e s t a t i o n e d p e r m a n e n tly w it h a f a c t o r y , th e p r a c t i c e o f k e e p in g an o f f i c e r f o r to o lo n g i n a p l a c e g i v e s room f o r c o l l u s i o n b e tw e e n th e t a x o f f i c e r and th e m a n u fa c tu r e r to p e r p e t r a t e d i s h o n e s t a c t s ; and ( 2 ) t h a t th e l i g h t c o n t r o l e x te n d e d to s m a lle r f a c t o r i e s p l a c e s to o much e m p h asis on th e h o n e s t y o f th e manu­ f a c t u r e r s w h ile t h i s h o n e s t y i s n o t b e in g v i g o r o u s l y 105 an d f i r m l y demanded th ro u g h p rom p t a p p l i c a t i o n o f d e t e r r e n t l e g a l s a n c t i o n to d i s c o v e r e d c a s e s o f f r a u d and e v a s i o n . F u r th e r m o r e , we h ave s u g g e s t e d t h a t a s y s te m o f r e g u l a r i n t e r - f a c t o r y t r a n s f e r o f s t a t i o n e d o f f i c e r s s h o u ld b e a d o p te d . A l s o , th e more c o n s i s t e n t an d co m p re h e n siv e s y ste m o f c o n t r o l w h e re b y t a x o f f i c e r s w o u ld ta k e d a i l y r e c o r d s ow f proc l u c t i o n s h o u ld b e e x te n d e d to a l l e x c i s e f a c t o r i e s . In t h a t c a s e , th e p r e s e n t s t a f f s t r e n g t h o f th e t e c h n i c a l d i v i s i o n w o u ld a p p e a r g r o s s l y in a d e q u a t e '1' . I t w ou ld b e n e c e s s a r y to r e v i s e i t on a c l e a r l y d e f in e d b a s i s . One su c h b a s i s c o u ld b e an a p p r o p r i a t e l y w o rk ed o u t r a t i o o f t o t a l am ount o f w ork i n v o l v e d to th e optimum c a p a c i t y o f e a c h g ra d e o f o f f i c e r . F o r e x a m p le , i n e s t i m a t i n g th e t o t a l am ount o f w ork i n v o l v e d ( a t f a c t o r y l e v e l ) e a c h e x c i s e f a c t o r y c o u ld b e w e ig h te d a p p r o p r i a t e l y h a v in g r e g a r d to th e l e n g t h o f tim e ta k e n i n m an u fac t u r n ' e q u e n c y o f p r o d u c t io n , and p o s s i b i l i t y and n e c e s s i t y o f a s c e r t a i n i n g th e q u a n t i t y o f p r o d u c t a t in t e r m e d i a t e s t a g e s o f p r o d u c t io n . 1 . In f a c t t h e r e i s a g e n e r a l o p in io n a t th e to p c a d r e s o f th e t e c h n i c a l d i v i s i o n t h a t s t a f f s t r e n g t h i s n o t b e in g a d j u s t e d to m eet th e r a p i d l y i n c r e a s i n g sc o p e o f e x c i s e w o rk a d e q u a t e l y . 106 If the pattern and flow of production is such as will necessitate frequent checks by excise officers, or if it is necessary to instal additional checks at intermediate stages of production, then high weights should be attached. In other cases, relatively lower weights could be attached. .The summation of all the weights could be taken as an estimate of the total amount of work involved. The optimum capacity of personnel could be estimated as the amount of work an official can take on having regard to the adequacy of his education and further training for the job, and the limitation imposed by the geographical dispersion of excise factories. 1 The required number of field staff for effective con- * trol at the factory level could therefore be determined by dividing the total amount of work by the optimum capacity of an official. Such an estimate could also be made with respect to staff requirement at the various other stages of excise control outside the factory level. Alternatively, one can say that, ceteris paribus, maximum efficiency of administration will be attained at the point where the rate of increase in compliance as a result of increase in1 1. The limitation imposed by the geographical dispersion of excise factories can be reduced by providing transport facilities to the extent that it would be economically efficient to substitute them for more hands on the job. staff is equal to zero. If increase in staff is measured in terms of cost of increasing the physical number and capacity of person­ nel, this optimum will be reached where marginal revenue collected is equal to the marginal cost of administration. While administration cannot be expected to attain this infinitesimal degree of perfection, it can be brought as close to it as possible. Excise administration in Nigeria, as it now is, is far from such an optimum level of efficiency* v 108 CHAPTER 4 POLICY AND PERFORMANCE OP EXCISE I. ISSUES OF THEORY Handled properly, excise taxation can be a powerful instru­ ment of economic policy. Its efficacy lies in its effect on price ratios and pattern of production. The effect of excise tax on prices and output turns on the widely discussed question of tax shifting'1 As mentioned in Chapter 3> the Nigerian excise tax law envisages that the tax would be shifted forward to the consumers. However, the possibility of its being shifted depends largely on the market forces, that is, on the conditions of demand and supply.1 1. There is a host of literature on the explanation of effects of excise taxation offered by the price theory. As pointed out by Richard A. Musgrave: "There is scarcely any tax which offers so inviting a playground for price theory as sale (and one might add - excise) tax." /""See R. A. Musgrave, Theory of Pub­ lic Finance. International Students' edition, (New York; McGraw-Hill Book Company, 1959)_y?p.287. Other important writers on the subject include, inter alia. Alfred Marshall, Principles of Economics. 8th edition, (London; Macmillan and Company, 19^l) pp. 343 - 344; R. A. Musgrave, Ibid.. pp. 287 - 307; J. M. Henderson and R. E. Quandt. Microeconomic Theory a Mathematical Approach,(New York: McGraw-Hill Book Company, w pp. 174 - 175; J. F. Due, Government Finance. 3rd edition (Illinois: Richard Irwin, 1963) pp. 263 - 277; A. R. Prest, Public Finance. (London: Wiidenfeld and Nicholson, i960) pp. 52' 59; Oswald Brownlee and George L. Perry; "Effects of 1965 Excise Tax Reductions on Prices", National Tax Journal. Vol.XX No.3, 19&5» PP* 235 “ 249, and Charles McLure: "Commodity Tax Incidence in Open Economies", National Tax Journal. Vol. XVII, No. 2, 1964, pp. 187 - 204. 109 To i l l u s t r a t e t h i s , l e t u s assum e t h a t p o i n t A i n F i g u r e 1 b e lo w r e p r e s e n t s a p r e - t a x m a rk e t e q u il ib r iu m p o s i t i o n f o r a com m odity. DD r e p r e s e n t s th e demand c u rv e w h ile r e p r e s e n t s th e s u p p ly c u r v e . And 0P^ an d 0Q^ r e p r e s e n t s th e p r e - t a x e q u i ­ l i b r i u m p r i c e and q u a n t i t y r e s p e c t i v e l y . S in c e e x c i s e t a x i s an a d d i t i o n to th e p r o d u c e r ’ s c o s t , an im p o s it io n o f a f l a t r a t e e x c i s e t a x w i l l s h i f t th e s u p p ly c u r v e fro m to S g S g w h ere i s p a r a l l e l to S 2 S 2 v e r "t^ c a -̂ d i s t a n c e b e tw e e n them r e p r e s e n t s th e amount o f t a x p e r u n i t . B y i n t e r a c t i o n o f s u p p ly and demand, a new e q u il ib r iu m p o s i ­ t i o n w i l l b e e s t a b l i s h e d a t B . Thus p r i c e i n c r e a s e s to 0P2 and q u a n t i t y f a l l s to OQ^. The amount o f t a x p e r u n i t i s P^P-p. H o w e ve r, o f t h i s am ou nt, o n ly P ^ P g is s h i f t e d fo r w a r d to co n su ­ m ers w h ile P ^ P ^ is s h i f t e d b a ck w a rd s to s u p p l i e r s o f f a c t o r s o f p r o d u c t io n . How much o f th e t a x i s t h e r e b y s h i f t e d fo r w a r d dep en d s on th e r e l a t i v e e l a s t i c i t i e s o f demand and s u p p l y . I f demand f o r th e p r o d u c t i s p e r f e c t l y i n e l a s t i c p r i c e w i l l r i s e b y th e f u l l am ount o f th e t a x . T h is s i t u a t i o n i s shown i n f i g u r e 2 , w here DD r e p r e s e n t s a p e r f e c t l y i n e l a s t i c demand c u rv e f o r th e p r o d u c t . P o in t s A an d B r e s p e c t i v e l y , r e p r e s e n t th e p r e - t a x an d p o s t - t a x e q u il ib r iu m p o s i t i o n s . The c o r r e s p o n d in g e q u il ib r iu m p r i c e s a r e 0P1 an d 0P 2 th e d i f f e r e n c e o f w h ic h i s eq u al to th e amount o f t a x . no FIGURE 1 Q u a n t i t y . Ill Both pre-tax and post-tax equilibrium quantities, however remain the same. On the other hand, if demand for the product is perfectly elastic, the increase in price that will result from the imposi- tion of excise tax will tend to zero. This is demonstraited b‘y figure 3 below. It will be seen that at both equilibrium posi­ tions, A and B, price remains unchanged but post-tax equili­ brium quantity fell to 0Q2from the pre-tax equilibrium quantity OQ^. Between these two extremes the proportion by which price will rise will vary inversely as the elasticity of demand. Figure 4 shows the effects of two demand elasticities between these extremes on the shifting of excise tax. S^S^ and represent pre-tax and post-tax supply curves respectively. D^D.jrepreseats a curve of low elasticity of demand, while >̂2̂ 2 represents a curve of highly elastic demand. For both of them A represents the pre-tax equilibrium position. B and C repre­ sent the post-tax equilibrium positions in case of low elasticity of demand and high elasticity of demand respectively. It will be seen that in the case of low elasticity of demand price rose by pi V while in the other case, it rose by only P^P^. Quantity fell by only in the former case, while in the later it fell by as much as Q QT. Similarly, the process of market adjustment to tax and the 112 113 eventual positioning of the post—tax equilibrium will be influenced by the elasticity of supply. Figure 5» below shows two supply elasticity curves for a commodity. Supply curve S1S1 is less elastic than supply curve G-̂G-̂ . Pre-tax qquili- brium position with respect to either supply condition and demand curve DD was at A. With an excise levy of P-jPg the supply curves shift to S2S2 and resPectively. Post-tax equilibrium is established at B where supply elasticity is low and at C where supply elasticity is high. At B, price has gone up by only P.P while at C it has gone up by P,P_ (where P1,P g> P_1P s'). This means the amount of tax which will be shiftdd forward will vary directly as the elasticity of supply. Although it is not very obvious from the diagramatic repre­ sentations, it can be shown that as a result of the joint influence of elasticities of supply and demand, the ratio of price change to the tax will be the ratio of elasticity of supply to the sum of elasticities of supply and demand, i.e. a,. — dg - V T? 2. E + n' where P = price, g = amount of tax,7 E = elasticit*y1 of 1. UA sing linear demand function Q,d = ao-bP and supply function Q = -c +B P , at pre-tax equilibrium position: Pe = Po = B T b .......................... M * and = Qa = Qs = a - = -c + B(fOb. ++ bc)...(ii) l l i f Quantity 115 s u p p ly and n = e l a s t i c i t y o f demand. Change i n e q u il ib r iu m 4 IS ]E n q u a n t i t y can b e e x p r e s s e d a s - l ) = - ^ • T h is means t h a t a s e l a s t i c i t i e s o f e i t h e r o r b o t h s u p p ly and demand te n d to z e r o ch ange i n q u a n t i t y te n d s to z e r o . w h ere P = p r i c e , Q = q u a n t i t y , b = ch an ge i n q u a n t i t y demanded a s a r e s u l t o f ch an ge i n p r i c e , B = Change i n q u a n t i t y s u p p lie d a s a r e s u l t o f ch an ge i n p r i c e , and a and c a r e c o n s t a n t s d e n o t in g th e i n t e r c e p t s o f demand and s u p p ly c u r v e s w it h th e o r d i n a t e . S u b s c r i p t 0 d e n o te s p r e - t a x , w h ile (b e lo w ) d e n o te s p o s t - t a x . A lth o u g h b and B a r e n o t e l a s t i c i t i e s o f demand and s u p p l y , th e r e s p e c t i v e e l a s t i c i t i e s w i l l move i n th e same d i r e c t i o n w it h them . W ith im p o s it i o n o f e x c i s e t a x g (w h ere g i s th e amount o f t a x p e r u n i t ) , demand f u n c t i o n re m a in s th e same w h ile s u p p ly f u n c t i o n b e co m e s: Q = c - B g + B P - . s 1 E q u il ib r iu m i s e s t a b l i s h e d a g a i n w h e r e : ...................... -(iii) aa4 Qe l = * Qs1 = - c - B g + b (- - - -" ■ £ B g ) .................. ( i v ) D i f f e r e n t i a t i n g P w it h r e s p e c t to g we h a v e : _4pe A b___ = E_— dg B + B “ E + n . 1. Prom e q u a t io n ( i v ) a b o v e , a + c + Qe, = - c + Bg + B ( B + b D i f f e r e n t i a t i n g Qe w i t h r e s p e c t to g we h a v e : -~ Q e = -B + dg B + b B = B(- B + b - 1 ) = E (E + n -1) E n OR Bb B + b = E + n . 116 The r a t i o o f ch ange i n p r i c e to th e e x c i s e t a x r e p r e s e n t s th e e x t e n t to w h ich th e t a x h a s b e e n s h i f t e d fo r w a r d w h ile th e d i f f e r e n c e b e tw e e n u n i t y and t h i s r a t i o r e p r e s e n t s th e e x t e n t to w h ic h i t h a s b e e n s h i f t e d b a c k w a r d ^ . The e a s i e r i t i s f o r m a n u fa c tu r e r s to s h i f t e x c i s e t a x f o r w a r d to consu m ers i n th e s h o r t - r u n , th e more n e u t r a l th e e f f e c t o f th e t a x w i l l b e on p r o d u c t io n . The in c i d e n c e o f t h a t p a r t o f th e t a x w h ic h ca n n o t b e s h i f t e d on to consu m ers f a l l s f i r s t on th e m a n u fa c t u r e r s . T h is r e s u l t s i n r e d u c t io n i n m a r g in a l r e t u r n s t o c a p i t a l i n v e s t e d and w i l l te n d to make c a p i t a l move i n t o f i e l d w here i t can e a r n h ig h e r r e t u r n s . Demand f o r f a c t o r s em plo yed i n th e p r o d u c t io n o f th e t a x e d com m odity f a l l s . T h is w i l l f o r c e down t h e i r p r i c e s th u s e n a b lin g th e m a n u fa c tu r e r s to s h i f t th e i n c i d e n c e f u r t h e r b a ck w a rd s to s u p p l i e r s o f f a c t o r s o f p r o d u c ­ t i o n . S h i f t i n g a f in c i d e n c e m ay, h o w e v e r, b e done o t h e r th a n b y * 2 p r i c e c h a n g e s . J o s e p h G u e rin s u g g e s t e d , f o r e x a m p le , t h a t d e p e n d in g on ’’ th e sh ap e o f th e c o s t f u n c t i o n f o r th e b a s i c 1 1 . T h is i s t a k e n to in c lu d e th e p a r t a b s o r b e d b y th e m a n u fac­ t u r e r fro m p r o f i t . 2 . J o s e p h G u e r in : " E x c i s e T a x a t io n and q u a l i t y o f p r o d u c t i o n " , P u b l i c F i n a n c e , V o l .X V , N o . 1 , I 9 6 0 , p p . 2 1 - 2 9 . 117 com m od ity" and. " t h e d e g re e o f r e s p o n s iv e n e s s o f consu m ers to ch an ge i n q u a l i t y " , th e m a n u fa c tu r e r "m ig h t b e a b le to make b e t t e r a d ju s tm e n t to t a x b y v a r y i n g " ( i f i t i s p o s s i b l e ) th e q u a l i t y o f th e com m od ity. E le m e n t o f fo r w a r d s h i f t i n g i s s e e n i n th e f a c t t h a t consu m ers now r e c e i v e lo w e r v a lu e f o r t h e i r m oney. And s i n c e d e b asem en t o f q u a l i t y may i n v o l v e r e d u c t i o n o f f a c t o r im p u ts , i t w i l l te n d to lo w e r demand f o r f a c t o r s o f p r o d u c t io n and c o n s e q u e n t ly t h e i r p r i c e s . Prom th e f o r e g o i n g , c e r t a i n t e n t a t i v e c o n c lu s i o n s o f b r o a d dP E p o l i c y s i g n i f i c a n c e can b e d raw n . S in c e -&r£>- -- ----f- --jb n- and "fg = 'j f ^ n ^ Can s e e n 'kkat w it h a n y g iv e n s u p p ly c o n d i t i o n , a lo w e l a s t i c i t y o f demand ( i . e . 1 > n -> o) w i l l e n a b le s u b s t a n - t i a l p r o p o r t i o n o f th e t a x to b e s h i f t e d fo r w a r d w h ile r e d u c t io n i n p r o d u c t io n may b e v e r y s l i g h t an d te n d to z e r o . I t ca n b e c o n c lu d e d t h e r e f o r e t h a t f o r p u rp o s e o f r a i s i n g r e v e n u e w it h o u t a f f e c t i n g p r o d u c t io n a d v e r s e l y e x c i s e s h o u ld b e l e v i e d o n ly on m co m m o d ities o f lo w e l a s t i c i t y o f demand. I t f o l l o w s l o g i c a l l y t h a t e x c i s e t a x a t i o n w i l l n o t b e a s u i t a b l e t o o l to d i v e r t r e s o u r c e s aw ay fro m p r o d u c t io n o f su c h co m m o d itie s . On th e o t h e r h a n d , l e v y i n g e x c i s e t a x on co m m o d itie s h a v in g h ig h e l a s t i c i t y o f demand w i l l r e d u c e q u a n t i t y demanded c o n s i d e r a b l y and w o u ld b e a g o o d m eans o f d i v e r t i n g r e s o u r c e s aw ay fro m th e p r o d u c t io n o f su c h co m m o d ities b u t n o t f o r r a i s i n g h ig h and s u s t a i n e d am ounts o f re v e n u e 118 Modes o f L e w . Our d i s c u s s i o n o f i s s u e s o f t h e o r y h a s so f a r b e e n b a s e d on s p e c i f i c r a t e mode o f l e v y . In a c t u a l f a c t , e x c i s e t a x c o u ld b e l e v i e d on a s p e c i f i c r a t e b a s i s , an ad v a lo re m b a s i s , o r a v a lu e - add ed b a s e s . A u n ifo rm r a t e o f t a x im p o sed on v a lu e ad d ed a t e v e r y s t a g e o f p r o d u c t io n up to th e f i n a l o u t p u t w i l l b e a n a lo g o u s to an ad v a lo re m l e v y b a s e d on m a n u fa c tu r e r s p r i c e . (And i f e x te n d e d to th e r e t a i l e n d , i t w i l l b e a n a lo g o u s to an ad v a lo re m l e v y b a s e d on r e t a i l p r i c e ) . A s s t a t e d e a r l i e r , a s p e c i f i c r a t e l e v y c a u s e s a s h i f t i n th e s u p p ly c u r v e su c h t h a t th e p o s t - t a x s u p p ly c u rv e i s p a r a ­ l l e l to th e p r e - t a x s u p p ly c u r v e . T a x p e r u n i t re m a in s c o n s - t a n t r e g a r d l e s s o f ch a n g e s i n p r i c e . H o w e ver, an ad v a lo rje mO yd l e v y makes th e s u p p ly c u rv e r o t a t e on i t s b a s e th u s m aking th e a b s o lu t e am ount o f t a x p a y a b le p e r u n i t v a r y d i r e c t l y a s th e p r i c e o f th e com m od ity. T h ese a r e shown b e lo w i n f i g u r e 6 w here S i S i r e p r e s e n t s th e p r e - t a x s u p p ly c u r v e , and S 2S 2 r e p r e s e n t s th e p o s t s p e c i f i c - r a t e - t a x s u p p ly c u r v e , an d r e p r e s e n t s th e V p o s t - a d v a lo re m - t a x s u p p ly c u r v e . u a ve n th e demand c u rv e DD, p o s t - t a x e q u il ib r iu m w it h b o t h th e s p e c i f i c r a t e an d ad v a lo re m r a t e l e v i e s w i l l b e a t A . A t t h a t p o i n t , p r i c e i s 0PQ and q a n t i t y i s 0 Qq i n e i t h e r c a s e , and e q u a l am ount o f t a x re v e n u e p e r u n i t i s c o l l e c t e d . H ow e ver, i f , a s a r e s u l t o f a n y e x o g en o u s f a c t o r , th e r e i s a ch ange i n 119 FIG U R E 6 Price Q u a n tity 120 demand w h ic h r e s u l t s i n th e s h i f t i n g o f th e demand c u rv e t o th e r i g h t , p r i c e , i n th e ad v a lo re m c a s e r i s e s to OP^ w h ile i n th e s p e c i f i c r a t e c a s e i t o n ly r i s e s to O P ,. The t a x p a i d i n th e ad Thus a s p r i c e r i s e s , t a x p e r u n i t te n d s to b e h i g h e r u n d er a d v a lo re m mode o f l e v y th a n u n d e r a s p e c i f i c r a t e l e v y . On th e o t h e r h a n d , s p e c i f i c r a t e l e v i e s te n d to r e s t r a i n co n su m p tio n l e s s when p r i c e s a r e r i s i n g th a n a d v a lo re m l e v i e s . The r e v e r s e h o ld s when p r i c e s a r e f a l l i n g ( a s can b e s e e n b y m ovin g DD to th e l e f t to th e p o s i t i o n o f ^2^2 a r e s u l t o f th e s e c h a r a ­ c t e r i s t i c f l e x i b i l i t y i n t a x p e r u n i t and q u a n t i t y consum ed a s p r i c e c h a n g e s , a d v a lo re m l e v i e s w o u ld p l a y th e r o l e o f a u to m a tic eco n o m ic s t a b i l i s e r s an d w ou ld t h e r e f o r e b e u s e f u l (a n d i n p a r t i ­ c u l a r more u s e f u l th a n s p e c i f i c r a t e l e v i e s ) i n c o n t r o l l i n g N e e d le s s to s a y , th e i s s u e s in v o l v e d go much b e yo n d t h e s e and t h e y h a v e to b e v ie w e d a g a i n s t th e b a c k g ro u n d o f th e p a r t i c u l a r econom y b e in g d i s c u s s e d . Demand f o r l o c a l m a n u fa c tu r e s i s n o t d e te rm in e d b y p r i c e a lo n e . C h an ges i n im p o rts an d th e g e n e r a l l e v e l an d d i s t r i b u t i o n o f incom e a l s o h ave to b e c o n s i d e r e d . I f 121 n o t ta k e n i n t o c o n s i d e r a t i o n , th e s e ch a n g e s m ig h t v i t i a t e th e e x p e c t e d p e rfo rm a n c e o f e x c i s e t a x b a s e d o n ly on th e f o r e g o i n g t h e o r e t i c a l a n a l y s i s . I t w i l l b e u s e f u l t h e r e f o r e to lo o k a t some o f t h e s e o t h e r f a c t o r s . T a r i f f P r o t e c t i o n and E x c i s e D u t ie s A n a l y s t s o f e x c i s e t a x a t i o n v e r y o f t e n w it h in th e c o n t e x t ( d e c l a r e d o r i m p l i a b l e ) o f o r a t l e a s t u n d er an a ssu m p tio n t h a t im p o r ts p l a y v e r y s m a ll r o l e i n th e t o t a l s u p p ly o f th e ta x e d com m odity. The a ssu m p tio n w i l l b e j u s t i f i a b l e o n ly i f p r o t e c t i v e t a r i f f e f f e c t i v e l y s h u t s o u t im p o r t s , o r i f th e l o c a l p r o d u c t io n c o s t c o n d i t io n makes i t d i f f i ­ c u l t f o r im p o r ts to com pete e f f e c t i v e l y i n th e l o c a l m a r k e t. The s e c o n d p r o v i s o - a b o u t r e l a t i v e c o s t s o f im p o rt and l o c a l manu­ f a c t u r e - c a n n o t b e s a i d to h o ld i n m o st u n d e rd e v e lo p e d c o t m t r id s j u s t s t r i v i n g to i n d u s t r i a l i s e . N i g e r i a i s n o t an e x c e p t i o n . I n 1965 , f o r e x a m p le , r a t i o o f th e C . I . F . v a lu e o f to w e ls to l o c a l c o s t o f p r o d u c t io n r a n g e d b e tw e e n hOfo an d 5 5 > » S i m i l a r l y , e v e n th ou g h o n ly a v e r y s m a ll am ount o f i n d u s t r i a l a c t i v i t y w as i n v o l v e d i n th e p r o d u c t io n o f r e i n f o r c i n g ro u n d s fro m im p o rte d s t e e l r o d s , C . I . F . v a lu e o f im p o rte d r e i n f o r c i n g ro u n d s r a n g e d o n ly b e tw e e n 1 See, Charles BcLure: Op.Cit.. p. I 87 122 70,1$ an d 72,8% o f l o c a l c o s t o f p r o d u c t io n . A ls o , a v e r a g e C . I . F . v a lu e s o f im p o rte d cem ent b e tw e e n 1 9 6 2 an d 1 9 6 5 w as 2 a b o u t £ 7 . 1 p e r to n , w h ile l o c a l c o s t o f p r o d u c t io n i s a b o u t 3 £ 1 0 p er* to n . One f i n d s , t h e r e f o r e , t h a t i n s t e a d o f im p o r ts s com pete w it h l o c a l m a n u fa c t u r e s , i t i s th e l a t t e r w h ic h s t r i v e s to f i n d i t s f e e t i n a l o c a l m a rk e t w h ere im p o r ts h ad a l r e a d y b e e n e n tr e n c h e d o r h a v e a c o m p a r a tiv e c o s t a d v a n t a g e . T a r i f f p r o t e c t i o n a r e in te n d e d to c o r r e c t t h i s c o s t d is a d v a n t a g e on th e l o c a l m a r k e t. I f th e p o l i c y i s t o e n c o u ra g e l o c a l m a n u fa c t u r e s , th e r o l e o f im p o r ts h ave to b e c o n s id e r e d i n fo r m u la t in g e x c i s e p o l i c i e s . A n y p r o t e c t i v e t a r i f f w h ic h e f f e c t s s u b s t a n t i a l r e d u c ­ t i o n i n im p o r ts i n c r e a s e s demand f o r th e l o c a l m a n u fa c tu r e . I f e l a s t i c i t y o f s u p p ly o f l o c a l m a n u fa c tu re i s lo w , t a r i f f p r o t e c ­ t i o n w i l l m e r e ly l e a d to demand e x c e s s w h ic h w i l l e x e r t an u pw ard p u l l on p r i c e s an d h e n ce make f o r w a r d s h i f t i n g p o s s i b l e . E f f e c t s o f C h an ges i n Income A p a r t fro m th e e f f e c t o f im p o rt r e s t r i c t i o n s , a n o th e r p r e - ssi e x e r t e d on demand b y ch a n g e s i n in co m e . The i n f l u e n c e 1 1 . S o u r c e : O f f i c i a l , M i n i s t r y o f F in a n c e 2 . A n n u a l A b s t r a c t o f S t a t i s t i c s . ( L a g o s : F e d e r a l O f f i c e o f S t a t i s t i c s , 19 6 £ > ). 3 . V a lu e s g iv e n b y th e two cem ent m a n u fa c tu r e r s who r e p l i e d to o u r q u e s t i o n n a i r e . 123 o f a n y ch an ge i n incom e on demand w i l l depen d on th e incom e e l a s t i c i t y o f demand f o r th e com m od ity. T h e re a r e two t h e o r e ­ t i c a l l i m i t s - w h ere in com e e l a s t i c i t y o f demand i s e q u a l to z e r o an d w h ere incom e e l a s t i c i t y o f demand te n d s to i n f i n i t y . B e tw ee n th e l i m i t s , t h e r e a r e c o n d i t io n s o f lo v ; incom e e l a s t i ­ c i t y o f demand (w h ere a ch an ge i n incom e r e s u l t s i n a l e s s th a n p r o p o r t i o n a t e ch an ge i n q u a n t i t y dem an ded), an d o f h ig h incom e e l a s t i c i t y o f demand (w h ere a ch an g e i n incom e r e s u l t s i n a more th a n p r o p o r t i o n a t e i n c r e a s e i n q u a n t i t y dem an ded). The incom e e l a s t i c i t y o f demand f o r a n y p r o d u c t i s s i g n i f i ­ c a n t f o r p u rp o s e s o f f o r m u la t in gC ehx c'i s e p o l i c y i n th e f o l l o w i n g r e s p e c t s . I f e x c i s e t a x i s l e v i e d on co m m o d ities o f lo w incom e e l a s t i c i t y o f demand, e x c i s e r e v e n u e from i t w i l l i n c r e a s e a t a lo w e r r a t e th a n i n c r e a s e i n in co m e . On th e c o n t r a r y , i f incom e e l a s t i c i t y o f demand i s h i g h , an d p r o d u c t io n r e s p o n d s w e l l to i n c r e a s e i n demand, e x c i s e r e v e n u e fro m su c h com m odity w i l l r i s e a t a h i g h e r r a t e th a n th e r a t e o f i n c r e a s e i n in co m e . I t can b e p r e s c r i b e d , t h e r e f o r e , t h a t f o r th e p u rp o se o f r a i s i n g h ig h an d i n c r e a s i n g r e v e n u e , t a x s h o u ld b e l e v i e d on co m m o d ities w it h h ig h incom e e l a s t i c i t y o f demand. A l s o o f s i g n i f i c a n c e i s th e p o s s i b i l i t y o f demand e x c e s s r e s u l t i n g fl*om th e j o i n t i n f l u e n c e o f im p o rt r e s t r i c t i o n and a r a p i d l y g ro w in g money in co m e . T h is te n d s to g e n e r a t e i n t o 124 i n f l a t i o n a r y p r e s s u r e . E x c i s e t a x a t i o n can th e n b e a p p r o - p r i a t e l y u s e d a s p a r t o f a p a c k a g e l e a l to mop up th e e x c e s s dem and^. On t h i s g r o u n d , th e t a x c o u ld b e l e v i e d on consum er go o d s w h ic h , f o r re v e n u e o b j e c t i v e o n l y , w o u ld h a v e b e e n deemed u n s u i t a b l e . E x c e s s demand i s u s u a l l y r e f l e c t e d i n th e p r i c e s o f commo­ d i t i e s . E x c i s e t a x d e s ig n e d to mop up t h i s e x c e s s s h o u ld , t h e r e f o r e , b e im p o sed on an a d v a lo re m b a s i s . M a n u f a c t u r e r s ' E x c i s e T a x and R e t a i l P r i c e s The a n a l y s i s o f th e e f f e c t o f e x c i s e t a x on th e p r i c e o f th e t a x e d com m odity u s u a l l y i m p l i c i t l y assu m es a o n e - s t a g e d i s - d y t r i b u t i o n n e tw o rk - fro m th e p r o d u c e r s t r a i g h t t o ,th e f i n a l co n ­ sum er - so t h a t th e r e w i l l b e no d iv e r g e n c e b e tw e e n th e p r i c e a t w h ic h th e p r o d u c e r s e l l s and w h at th e consum er p a y s . H o w e ver, t h e r e i s a lw a y s th e p o s s i b i l i t y t h a t th e r e w i l l b e v a r i o u s i n t e r ­ m e d ia r ie s b e tw e e n th e p r o d u c e r and th e co n su m er, th u s m aking i t p o s s i b l e f o r m T m a n u fa c t u r e r s ' p r i c e to d i v e r g e w i d e l y fro m 1. ’l a t i o n a r y e f f e c t o f e x c i s e t a x a t i o n l i e s i n i t s a b i l i t y to t r a n s f e r money fro m p r i v a t e h an d s i n t o th e c o f f e r s o f g o v e rn m e n t. A s a d e q u a t e ly p u t b y E a r l R . R o lp h , ( s e e h i s "A p r o p o s e d r e v i s i o n o f e x c i s e - t a x t h e o r y ” , J o u r n a l o f P o l i t i c a l Econ om y. V o l . L X , A p r . 19 52 , p p . 102 - 1 1 7 ) , " a n y t a x w h ic h h a s a y i e l d , b y re m o v in g ca sh fro m p r i v a t e h a n d s , l e a v e s p r i v a t e g ro u p s w i t h s m a lle r b a la n c e s i n am ounts j u s t e q u a l to th e i n c r e a s e i n th e g o v e r n m e n t 's b a l a n c e . ” I t d o e s n o t m a t t e r i n w h at d i r e c t i o n th e t a x i s s h i f t e d - t h e r e i s s t i l l d e f l a t i o n a r y e f f e c t e v e n w h ere th e t a x h a s b e e n S h i f t e d b a c k w a rd s 125 p r i c e s p a i d b y co n su m e rs. T h is p o s s i b i l i t y r e s t s on th e ch an ­ n e l o f d i s t r i b u t i o n ( t h a t i s , how many s t a g e s a r e i n v o l v e d i n th e d i s t r i b u t i o n ) an d th e p r i c i n g p o l i c y o f th e d i s t r i b u t o r s . I f th e p r i c i n g p o l i c y o f a l l th e w h o l e s a l e r s an d r e t a i ­ l e r s i s to add on a s p e c i f i c am ount o f money p e r u n i t a s t h e i r p r o f i t m a r g in , r e t a i l p r i c e w i l l n o t r i s e more th a n th e amount ( o r th e p r o p o r t i o n ) o f th e t a x b y w h ic h th e m a n u f a c t u r e r s ’ p r i c e h a s gone u p . S i m i l a r l y , i f th e m a n u fa c tu r e r f i x e s th e r e t a i l p r i c e and i s a b le to e n f o r c e i t , t h e r e w i l l b e no d a n g e r o f th e r e t a i l p r i c e r i s i n g more th a n w h at th e m a n u fa c tu r e r a d d s o n . W h ere, h o w e v e r, r e t a i l p r i c e i s n o t c o n t r o l l e d , and th e m iddlem an add on a m ark -u p o f a s p e c i f i e d p e r c e n t a g e o f t h e i r c o s t a s p r o f i t m a r g in , th e t a x w i l l be p y ra m id e d . The m agn i­ tu d e o f su c h p y r a m id in g w i l l , h o w e v e r, depend n o t o n ly on th e p e r c e n t a g e m ark -u p b u t a l s o on th e number o f s t a g e s a lo n g th e c h a n n e l o f d i s t r i b u t i o n . ' (w h o lly or in p a rt) to re so u rce owner. The c r u c ia l p o in t i s th a t income and th e re fo re p u rch asin g power i s redu ced. N e e d le s s to s a y , th e c a p a b i l i t y o f e x c i s e i n c o n t r o l ­ l i n g i n f l a t i o n d o e s n o t go b e y o n d t h i s . Much depends a l s o on th e m o n e ta ry an d e x p e n d it u r e p o l i c i e s o f g o vern m en t f o r th e a c h ie v e m e n t o f th e g o a l . 126 F o r e x a m p le , su p p o se th e m a n u f a c t u r e r 's p r i c e f o r a commo­ d i t y , p r e - t a x , i s 2 0 / - p e r u n i t and t h a t b o t h th e w h o le s a le r and r e t a i l e r o f th e com m odity add on 5 / - m a rg in o f p r o f i t r e s p e c t i ­ v e l y . I t means t h a t th e w h o l e s a l e r 's p r i c e w i l l b e 25/ - and th e r e t a i l e r ' s p r i c e w i l l b e 3 0 / - p e r u n i t . Now su p p o se a t a x o f 1 0 / - p e r u n i t o r 5 0 $ a d v a lo re m i s im p o sed on th e com m odity. I n e i t h e r c a s e , th e m a n u f a c t u r e r 's p r i c e g o e s up to 3 0 / - . T h e r e f o r e w h o l e s a l e r ’ s an d r e t a i l e r ' s p r i c e s becom e 3 5 / - and 4 0 / - r e s p e c - t i v e l y . A l t e r n a t i v e l y i f th e w h o le s a le 3 p r i c i n g p o l i c y i s no m ark p r i c e up b y 25$ and th e r e t a i l e r b y 2 0 $ th e n t h e i r p r e - t a x p r i c e s w o u ld h ave b e e n x 20 = 25/ - an d x 25 = 3 0 / - r e s p e c t i v e l y . P o s t - t a x , t h e i r p r i c e s w o u ld h ave becom e ^ x 3 0 = 3 7 / 6 d . and x = 4 5 / - r e s p e c t i v e l y . I n e i t h e r c a s e i t ca n b e s e e n t h a t u n d e r th e fo rm e r s y ste m o f p r i c i n g w here th e w h o l e s a l e r s and r e t a i l e r s a l l o w a b s o lu t e am ount o f 5 / - e a c h a s p r o f i t m a r g in , t h e i r p r i c e s w en t u p , a f t e r t a x , o n ly b y th e amount o f th e t a x . B u t u n d er th e l a t t e r p r i c i n g s y s t e m , w h ere th e w h o le s a le r a l l o w s a p r o f i t m a rg in o f 25$ and th e r e t a i l e r , a m a rg in o f 2 0 $ , p r i c e s w en t up a f t e r t a x b y 1 2 s . 6 d . and 1 5 / - r e s p e c t i v e l y . E i t h e r o f t h e s e i s h ig h e r th a n th e a c t u a l m a n u f a c t u r e r 's e x c i s e t a x o f 1 0 / - p e r u n i t . In t h i s c a s e th e t a x i s p y ra m id e d . 127 The amount b y which p r ic e s r i s e above the a c tu a l amount s h ift e d fo rw ard by the m anufacturer can r i g h t l y be regard ed as a *p r o fite e r in g * m argin. As p o in te d out b y J . P . Due% pyram i­ ding w i l l have no p la c e in fa c e o f p e r fe c t co m petition. This 2 i d e a i s s u p p o r te d b y th e f i n d i n g s o f H. Jo h n so n i n h i s s t u d i e s b a s e d on th e 1 9 5 4 M a n u fa c tu r e r s * e x c i s e t a x r e d u c t i o n s i n th e U n it e d S t a t e s , t h a t p y r a m id in g te n d s to b e more r i f e w h ere th e b u lk o f th e t r a d e i s c o n c e n t r a t e d i n th e hand s o f a v e r y fe w f i r m s . R e t a i l p r ic e based on e x c ise duty The c lo s e r to the r e t a i l end the p o in t o f le v y i s , the l e s s the p o s s i b i l i t y o f the ta x b ein g pyram ided. A r e t a i l p r ic e b a s is o f e x c is e d u tie s w i l l e lim in a te the problem o f pyram iding a lto g e th e r . Furtherm ore, w ith t h is mode o f l e v y , the a c t u a l amount o f ta x w i l l v a ry d i r e c t l y as the r e t a i l p r i c e s . The amount o f ta x r i s e s as r e t a i l p r ic e s r i s e s and f a l l s as r e t a i l p r ic e f a l l s . Thus, the f l e x i b i l i t y re q u ire ­ ment mentioned e a r l i e r in re s p e c t o f mopping o f f o f e x ce ss demand w i l l be f u l l y s a t i s f i e d . 1 1 . J . P . D ue: G overnm ent F i n a n c e , op c i t . , p . 2 7 4 . 2 . H a r r y Jo h n s o n : " T a x P y r a m id in g and th e M a n u fa c tu r e r * s E x c i s e T a x R e d u c tio n o f 1 9 5 4 , " N a t i o n a l T a x J o u r n a l V o l . X V I I , N o .3 , Se p te m b e r 1 9 6 4 , p . 2 9 9 ; and " E x c i s e T a x r e d u c t i o n s : A s t im u la n t to E co n o m ic G r o w th ", N a t i o n a l T a x J o u r n a l . V o l . X V I I I , N o .2 19 65 , p p . 2 0 2 - 2 0 8 ( s e e e s p e c i a l l y p . 2 0 7 ) . 128 Summary o f P o lic y P re s c r ip tio n s From the fo re g o in g , the fo llo w in g p o lic y p r e s c r ip tio n s can be made. F i r s t , f o r the purpose o f r a i s i n g h igh and s ta b le reven u e, as f a r as p o s s ib le , o n ly commodities o f low p r ic e e l a s ­ t i c i t y o f demand and low supply e l a s t i c i t y should be ta xe d . Such a p o lic y would, moreover have the e f f e c t o f m inim ising any ' ; ■ .............. : ■ ■ " " " ■ subsequent d is to r t io n s in re so u rce a llo c a t io n . Seco n d ly, the o b je c tiv e o f a tta in in g a h igh er r a te o f in cre a se o f e x c is e r e v e ­ nue would be a s s is t e d b y imposing e x c is e on commodities having high income e l a s t i c i t y o f demand. T h ir d ly , i t i s p o s s ib le th a t the government wants to in flu e n ce re so u rce a llo c a t io n . In th a t c a s e , e x c is e ta x a tio n would be u s e fu l o n ly i f the commodities have high e l a s t i c i t y o f demand and su p p ly. F o u rth ly , i f the aim i s to con tain in f la t io n a r y p re s su r e , as w e ll as m inimi s e the d is to r t io n a r y e f f e c t o f p r ic in g p o li c i e s o f d is t r ib u t o r s , th e n the coverage o f the ta x should be extended to as many consumer goods as p o s s ib le , the mode o f le v y should be ad valorem , and i t should be based on r e t a i l p r ic e s . I t i s c le a r from the above th a t the a c tu a l e x c is e ta x p o li c y w i l l depend on the p o lic y o b je c tiv e s o f the government. The m ost th a t can be s a id here i s th a t th ere may be i n t e r ­ country d iffe r e n c e s (depending on in d iv id u a l country* s sta ge o f development and the p e c u la ir problems o f each c o u n tr y 's economy) 129 an d t h a t i n a l l p r o b a b i l i t y , th e g o v ern m en t w o u ld h a v e many r a t h e r th a n one o b j e c t i v e . A g a i n s t th e b a c k g ro u n d o f th e f o r e g o i n g d i s c u s s i o n s , we w i l l now a tt e m p t to e v a lu a t e N i g e r i a 's e x c i s e t a x p o l i c y . I I POLICY O BJEC TIV ES A s f a r a s we a r e a b le to a s c e r t a i n fro m o f f i c i a l r e c o r d s , o u r d i s c u s s i o n s w it h g o vern m en t o f f i c i a l s , an d o u r d e d u c tio n s fro m th e e v o l u t i o n and o v e r a l l s t r u c t u r e o f N i g e r i a 's e x c i s e , th e p o l i c y g o a ls to w h ic h e x c i s e h a s b e e n d i r e c t e d i n N i g e r i a f a l l s i n t o two broad c a t e g o r i e s : (a) R eve n u e o b j e c t i v e s , and (b ) E co n o m ic C o n t r o l and L e v e l o b j e c t i v e s . A . REVENUE O BJEC TIV ES The p r im a r y and m a jo r o b j e c t i v e o f e x c i s e t a x i n N i g e r i a i s to r a i s e r e v e n u e f o r th e g o v e rn m e n t. T h is i s s u p p o r te d b y th e f a c t t h a t m a j o r i t y o f th e co m m o d ities s e l e c t e d f o r e x c i s e a r e o f e i t h e r lo w p r i c e e l a s t i c i t y o f demand o r h ig h incom e e l a s t i c i t y o f demand, o r b o t h . T h e se c h a r a c t e r i s t i c s h a v e b e e n shown i n o u r d i s c u s s i o n o f t h e o r e t i c a l i s s u e s a s n e c e s s a r y co n ­ d i t i o n s f o r th e d e r i v a t i o n o f h i g h , s t a b l e , an d i n c r e a s i n g r e v e ­ nue fro m e x c i s e . F u r th e r m o r e , lo o k in g a t th e c o v e r a g e o f th e t a x , one s e e s t h a t i t i s su c h a s w o u ld e n su re p r o g r e s s i v e l y h i g h e r l i a b i l i t y b y h o u se h o ld a s h o u se h o ld in co m es r i s e . T h is i s b e c a u s e th e h i g h e r th e h o u se h o ld in co m e s r i s e th e more th e i-'bo 130 t a x e d co m m o d ities a r e l i k e l y to f e a t u r e i n t h e i r p a t t e r n o f co n su m p tio n . A s a r e s u l t g o vern m en t r e v e n u e w i l l i n c r e a s ­ i n g l y b e n e f i t fro m i n c r e a s e s i n th e N a t i o n a l In co m e. H o w e ver, two a s p e c t s o f t h i s re v e n u e o b j e c t i v e a r e n o t i c e a b l e . A t th e i n i t i a l s t a g e s , th e aim w as t o u se i t to su p p le m e n t g o vern m en t r e v e n u e fro m o t h e r s o u r c e s - l a r g e l y im p o r t and e x p o r t d u t i e s . H o w e ver, i t l a t e r , i n a d d i t i o n , i n c r e a s i n g l y cam eto co m p en sate f o r l o s s o f r e v e n u e fro m im p o rt d u t i e s . 1 . S u p p le m e n ta ry r o l e The o r ig in a lL ^ ( oojf g o vern m en t w as t o l e v y t a x on co m m o d ities w h ich i t f e l t w ere n o t " b a s i c n e c e s s i ­ t i e s o f l i f e . " F o r a v e r y lo n g t im e , t h e r e f o r e , o n ly c i g a r e ­ t t e s an d t o b a c c o , and b e e r w ere s u b j e c t e d to e x c i s e t a x . I n s i n g l i n g o u t t o b a c c o , c i g a r e t t e s and b e e r i n t h i s m an n er, th e govern m en t w as a s s i s t e d b y a v i t a l p e r m i s s iv e f a c t o r - t h a t th e p r i c e e l a s t i c i t y o f demand f o r e a c h o f t h e s e p r o d u c t s i s l i k e l y to b e lo w . E x c i s e d u t y l e v i e d on them i s v v 1 . I n m ovin g th e f i r s t o f h i s 1 9 4 9 / 5 0 b u d g e t , Hon. A .W .L . S a v a g e , th e n F i n a n c i a l S e c r e t a r y o f th e N i g e r i a L e g i s l a t i v e C o u n c i l , e x p la in e d " i t was e s s e n t i a l , " i n f i n d i n g how b e s t to r a i s e a d d i t i o n a l £ 9 0 0 ,0 0 0 f o r r e c u r r e n t e x p e n d it u r e " t o a v o id a n y t a x a t i o n w h ich w o u ld te n d to i n c r e a s e th e c o s t o f b a s i c n e c e s s i t y o f l i f e . " A s a r e s u l t , one h a l f o f th e w h o le am ount w as to b e r a i s e d b y i n c r e a s i n g b o t h im p o rt an d e x c i s e d u t i e s on to b a c c o and c i g a r e t t e s . T h is s o r t o f r e a s o n i s u s u a l l y a d v a n c e d to s u p p o r t th e s o c a l l e d su m p tu a ry t a x e s . We w h a ll n o t c o n t e s t w h e th e r 131 t h e r e f o r e , l i k e l y to b e h i g h l y p r o d u c t i v e o f r e v e n u e , i n a d d i t i o n to th e f a c t t h a t i t i s l i k e l y to h ave l i t t l e a d v e r s e e f f e c t on p r o d u c t io n . S i m i l a r c o n s i d e r a t i o n s m u st h ave i n f l u e n c e d th e g overn m en t when i t d e c id e d to make la w s c o n t r o l l i n g th e p r o d u c t io n o f s p i r i t s and m a tc h e s , to f a c i l i t a t e c o l l e c t i o n o f e x c i s e re v e n u e on them , lo n g b e f o r e th e i n d u s t r i e s came i n t o e x is Ln N i g e r i a - j u s t i n th e same w ay c i g a r e t t e s and rere t r e a t e d . Fifir th e f a c t t h a t s p i r i t s i s n o t a b a s i c n e c e s s i t y , incom e e l a s ­ t i c i t y o f demand f o r i t i s l i k e l y to b e h i g h . M a tc h e s , on th e o t h e r h a n d , i s consum ed b y a l l h o u s e h o ld s , h e n c e , ( b e in g a n e c e s s i t y ) , p r i c e e l a s t i c i t y o f demand f o r i t i s l i k e l y to b e lo w . F u r th e r m o r e , b e c a u s e e a c h o f th e s e p r o d u c t s i s m a n u fa c tu re d i n l a r g e f a c t o r y u n i t s , and e x c i s e t a x i s im p o sed a t th e m a n u fa c tu r in g s t a g e , i t w o u ld b e e a s y to c o l l e c t e x c i s e re v e n u e on them a t a lo w e r a d m i n i s t r a t i v e c o s t . One c o u ld c o n c lu d e , t h e r e f o r e , t h a t th e a c t u a l p o l i c y o f g o vern m en t d u r in g th e i n i t i a l y e a r s w as to su p p le m e n t r e v e n u e by- subjecting p r o d u c t s o f lo w p r i c e e l a s t i c i t y o r h ig h incom e e l a s ­ t i c i t y o f demand to e x c i s e w h ere su ch e x c i s e re v e n u e c o u ld co m m o d ities su c h a s c i g a r e t t e s and to b a c c o (an d e v e n b e e r ) do o r do n o t c o n s t i t u t e b a s i c n e c e s s i t i e s , o r th e r i g h t o r w rong o f im p o r tin g s o c i a l norm o r r e l i g i o u s d o c t r i n a i r i s m f o r th e j u s t i f i c a t i o n o f p u n i t i v e l e v y . T h is p o i n t w as a d e q u a t e ly d i s c u s s e d b y J . F . Due i n h i s & overnm ent F i n a n c e , o p . c i t . pp. 312 - 313. 132 e a s i l y b e c o l l e c t e d . 2 . C o m p en satin g r o l e H o w e ve r, a s govern m en t was i n c r e a s i n g l y c o m p e lle d to r e s ­ t r i c t im p o r ts i n o r d e r to s a v e f o r e i g n e x ch a n g e an d p r o t e c t l o c a l i n d u s t r i e s , i t a d o p te d a p o l i c y o f t a x i n g th e l o c a l manu­ f a c t u r e r s w h ic h a r e t h e r e b y p r o t e c t e d " i n o r d e r to o f f - s e t p a r t o f th e a d v e r s e e f f e c t s . . . . on g o v ern m en t r e v e n u im p o rt Cm d u t i e s . " F o r e x a m p le , i n 1964 , when i t w as t n e c e s s a r y to g i v e th e l o c a l b e e r i n d u s t r i e s a h i g h e r d e g re e o f p r o t e c t i o n , im p o r t d u ty on b e e r was i n c r e a s e d fro m 9 / 6 d . p e r g a l l o n t o 1 5 / - p e r g a l l o n (a n i n c r e a s e o f a b o u t 6 8 % ), w h i l s t th e g o v ern m en t a t th e same tim e im p o sed a c o m p e n sa to ry i n c r e a s e o f 4 d p e r g a l l o n i n e x c i s e d u t y . ( T h is w as gin i n c r e a s e o f o n ly 5 / ) Im p o rt d u t y on m a tch e s w as i n c r e a s e d b y 1 8 / - p e r g r o s s b o x w h ile e x c i s e d u ty w en t up b y 5 / 3 d . S i m i l a r l y ( i n M arch an d A u g u s t , 1 9 64) , a t w o - s t a g e i n c r e a s e r a i s e d im p o rt d u ty on cem ent fro m 3 0 / - p e r to n o r 2 0 / ad v a lo re m to 1 0 0 / - p e r to n o r 7 5 / a d v a lo r e m . A co m p e n sa to ry e x c i s e l e v y o f 1 5 / - p e r to n w as im p o sed i n M arch 1 9 6 4 .is i s f u r t h e r b o rn e o u t b y th e f a c t t h a t e v e n th ou gh so ap s l i k e l y to h a v e a lo w p r i c e e l a s t i c i t y o f demand, r a t h e r th a n f a c e th e a d m i n i s t r a t i v e d i f f i c u l t i e s o f im p o sin g e x c i s e t a x on i t i n i 960, th e g o v ern m en t d e - e x c i s e d th e p r o d u c t a f t e r o n ly n in e m o n th s. S e e s u p r a . p p . 30: - 3 1 S e e C e n t r a l B an k A n n u a l R e p o r t . 1 9 6 5 , p . 1 2 . 133 In evaluating the compensatory role , two important issues have to be considered: (l) the extent to which the restrictive import duty succeeds in shutting out imports, and (2) the pre-tax level of production and the extent to which reduction in quantity imported leads to an increase in local production. 1. The extent to which restrictive import duty succeeds in shutting out imports will affect revenue in two ways: (a) revenue will tend to increase by the product of the quantity imported and the change in tax; and (b) it will tend to fail by the product of the fall in quantity imported and the increased tax. If the former is greater than the latter, then import reve­ nue will rise, inspite of the increase in import duty. In that case, the role of any excise levy (or increase) on local produc­ tion will be supplementary only. On the other hand, if the latter is greater than the former, import revenue will fall as a result of the increase in import duty. In which case, the role of excise will be compensatory - to the extent of the fall in import revenue. 1 1. We wou Id lik e to emphasise the compensatory role of excise is limited only to the extent that import revenue has fallen as a result of the additional import duty levied, full compensation is attained when the ratio of increase in excise revenue to fall in import revenue is equal to unity. Where the ratio is greater than unity, the excess of increase in excise revenue over the fall in import revenue should rightly be regarded in terms of supplementary role. It is possible, however that an increase in excise duty on commodity may actually lead to a fall in excise revenue at the same time that import revenue has fallen. In that case, excise would be playing neither a compensatory nor a supplementary role. 134 Thus, the change in import revenue from any product will depend on the elasticity of demand for the product and the change in import duty. If elasticity of demand for the imports is low and the increase in import duty is high such that the proportional fall in quantity demanded is less than the proportional increase in import duty, import revenue will rise rather than fall inspite of increase in import duty. On the other hand, if f;hh "t̂"* R~ hegative (i.e* .there will be a fall in import revenue. 135 2. Given that import restriction results in a fall in import revenue, the extent to which excise revenue compensates or over­ compensates for loss in import revenue will be influenced by: the pre-tax level of production, the extent to which the reduction in quantity imported (and other factors) leads to an increase in local revenue collected on the pre-tax level of production might be sufficient to compensate fully for ;ion in import revenue. In that case, revenue collected in respect of any increase in produc- tion will only be playing a supplementary role. Even when govern­ ment cannot fully recoup loss^of import revenue on the pre-tax level of production, it might be able to do so on total post-tax production if production adjusts adequately to change in import. However, if the proportion of total supply produced locally is very small and elasticity of local supply is low (especially if unutilized productive capacity is low and capacity cannot be increased) excise might only partially compensate for fall in import revenue unless the excise duty imposed is very high\ 1 1. In that case, a policy of full compensation would not be advi­ sable since the high excise duty required would considerably reduce the protective margin of the import tariff - unless elasticity of demand for the local production is very low and tends to zero and/or the import restriction takes the form of physical control (either total ban or importation under specific licence). 136 From table 4.2 it can be seen that the relative importance of import in the total annual supply of five selected commodities has been steadily decreasing. In 1961, import accounted for 0.6 of total supply of beer. By 1963, it has dropped to as low as 0.2 and in 1968, it was much less than 0.1. be accounted for, partly by the increases in 7/2d. per gallon of wort of gravity 1040° to 15/- in 1964), and partly by the considerable industry between 1962 and 1964. Within that period, the number of factories brewing beer grew from thus, increasing pro­ ductive capacity considerably and accelerating import substitution. It can be seen from table 4.3 that increases in excise reve­ nue from been have played both supplementary and fully compensa­ ting roles over the period examined except in 1964/65 and 1965/66. In 196i/65, the increase in excise was fully supplementary because import revenue increased rather than fall. But in 1965/66 the increase revenue was only partly compensating. This was because increase in production in 1965/66 was only 478,000 gallons, even though quantity imported dropped by about 1.2 million gallons, during the same year. Similarly, from table 4.4, it can be seen that excise revenue from motor spirit (in the pre-civil war years) has not only been le See Industrial Directory, 1967 o p . cit. p.8 TABLE 4.1 LOCAL PRODUCTION AND _ I1MP9O^Rg T OF S- ELECTE‘D COM'MODITIES BEER CEMENT ROOFING COTTON N*million SHEETS TEXTILES gallons N'000 tons N'000 tons N'OOlD gals N'million YEAR Yards Produ­ Import Produ­ction ction Import Produ­ ction Import Produ­ ction Import Produ­ ction Import 1961 5.04+ 7.76 358 446 n.a. n.q. n.a. n.a. n.a. n.a. 1962 5.73+ 5.02 416 335 n.a. n.a. n.a. n.a. n.a. n.a. 1963 10.74+ 1.92 518 300 n.a. n.a. n»a. n.a. n.a. n . a. 1964 12.13+ I.64 653 178 n.a. n.a. n.a. n.a. n.a. n.a. 1965 12.61 0.43 967 171 025.8 3.9 897 284 103.4 209.8 1966 13.90 0.36 986 151 50.7 1.9 1,080 230 176.8 146.0 *1967 13.34 O .25 722 134 40.5 1.3 1,023 237 233.1 182.6 *1968 15.60 O .25 565 „ ^ 90 36.5 1 . 0 920 216 218.8 127.9 n.a. means Not available + Computed from excise revenue figures * Exclude figures from the Eastern States from July 1967 SOURCES: Economic Indicators. Vol.4, No.12, December 1968, Federal Office of Statistics, Lagos Annual Abstract of Statistics. Nigeria, 1965, Federal Office of Statistics, Lagos. TABLE 4.2 IMPORTED PROPORTION OF TOTAL SUPPLY OF SOME EXC 1961 - 1968 YEAR V.. BEER CEMENT ROOFING- SHEETS PAINT COTTON TEXTILES % of Total % of Total fo of Total % of Total % of Total Supply Supply Iy*>*+. . . . . . . Supply Supply: .... * 1961 60.6 55.47 1962 v < ? r4-6.7 41.31 1963 15.2 36.67 1964 11.9 21.42 1965 3.3 13.09 25.05 66.99 1966 2.5 13.28 3.53 17.56 45.23 1967 !.8 15.65 3.20 18.81 43.93 1968 ;4J 13.74 5.08 19.01 36.89 SOURCE: Computed from Table 4- - f TABLE 4.3 CHANGES IN REVENUE FROM BIPORT AND EXCISE DUTIES ON X962 fr 19^9 £*million 1962/63 1963/64 1964/65 1965/66 1966/67 1967/68 1968/69 \ / E x c is e 0.523 1.670 0.610 oĵ 0.368 -0.238 0.305 #]jnport -0.174 -1.488 -0.606 -0.037 -0.176 -0.027 Supplemen­ tary Margin 0.349 0.182 0.610 -0.322 0.331 P 0.233 SOURCES: Accountant General of the Federation's Reports, 1963-1967 Federal Official Gazettes, N0.5O, Vol.55, of 1968 and No.39, Vol. 56, of 1969. Import revenues were obtain ed by m u ltip ly in g im port H f ig u r e s by the r e le v a n t im port d u ty. VV>Oi TABLE 4.4 CHANGES IN BIPORT AND EXCISE REVENUE FROM MOTOR SPIRIT AND DIESEL OIL 1965 - 1967 £*million MOTOR SPIRIT DIESEL OIL V ----- 1965/66 1966/67 1965/66 1966/67 Excise 1.806 H 6.899 2.180 4.255 Import A jr-w -5.920 -1.30 1 -4.801± . i Supplementary Margin 0.656 1.179 0.879 -0.546 SOURCE; Accountant-General of the Federation's Reports for Years Ending 1966 and 1967. 141 compensating fully for fall in import revenue but has been playing a supplementary role as well. In case of diesel oil, fall in import revenue was more than compensated for by excise in 1965/66 but in 1966/67 loss in import revenue was not fully compensated for by increase in excise revenue. This partial compensation was accounted for largely by drawbacks granted, some of which would have accrued on the previous year. Data are not available in a form that would make it possible to clearly distinguish between the compensatory and supplementary roles other products might have been playing. But from table 4.2, one can see that in 1964, when cement was subjected to excise duty at 15/- per ton, local production was 78.6/ of total supply. The lower limit of import duty on cement was increased from £1 10/- first to £2 10/- (an increase of 66J/ ) and later to £5 (a further increase of 100/ )pper ton. Altogether during that year, quantity imported fell from 300,000 tons to 178,000 tons (a fall of only 37|* /). (See Otab-le 4.1). It would be seen from these figures that the rate of increase in import duty on cement was sc much higher than the rate of reduction in the quantity of imported cement. From this it can be concluded that import revenue would fall only slightly or not at all, and this would imply that the increase in excise revenue would be largely supplementary. Also, judging from the fact that in 1965 quantity produced locally increased by about 50$ (314,000 tons) while quantity imported fell by only about (7,000 tons)"*-, the increase in excise revenue in that year would also be higher than fall in import revenue. The same trend can be discerned from tables 4.1 and 4.2 with respect to other commodities. Excise duties were levied at points where substantial proportion of total supply of Lties were being produced locally. For example, when cotton textiles were subjected to excise tax in 19&4, local supplies were tax was levied on roofing sheets in progressed at very high rates. For example, production of paint grew at an annual compound rate of 35^ between 1964 and 1966. 3 It could be inferred therefore that the increases of excise revenue from each of the commodities would have been more than enough to compensate for loss of import revenue on them. 1* It should be pointed out, however, that a substantial part of cement imported from 1965 has been of the special type used on the Kainji Dam Project. Since this would be imported duty free the percentage change in dutiable quantity imported would very likely be lower than what the table shows. 2. The fact that consumers still had to rely on imports for high quality types of cotton textiles accounted for the high per^ centage import component of cotton textiles. See Central Bank Annual Report. 19&5, P»25 It would appear therefore that excise revenue from individual excisable commodity has been meeting the revenue objective of the government. Not only has excise revenue been compensating for loss of import revenue on each commodity, in some cases, contri­ bution of excise to revenue has actually been more than enough to compensate fully for loss of import revenue. This has been made possible largely by the facts that (i) except with respect to a few commodities (cigarettes, beer, matches, portable spirits and other spirits and diesel) excise is imposed at points where the local supply constitutes, at least, ^I'than half of total supply and (ii) local production he sen increasing much faster than the fall in import. B. E'C rO.N.OMI C CO~N TROL M D~ D" E' V1,1 E' LT"O 'P " MENT' ~OBJECTIVES ’’The basic long-term aim of (Nigeria's) industrial policy (has been) to promote the expansion and diversification of the economy in order to ensure a balanced growth and to enhance the country's balance of payments positions."^ To this end, various incentives 2 have been granted to encourage the establishment of various industries in Nigeria as well as remove cost disadvantage 1 1. "Statement on Industrial Policty," Sessional Paper, go. 6 of 1964 (Lagos: Federal Ministry of Information, Printing Division), p. 1. 2. Ibid.. pp. 2 - 6 . See also "Incentives to Industrial Develop­ ment", Nigeria Handbook of Commerce and Industries. Fifth Edition, 19^2, (Lagos: Federal Ministry of Information), pp. 52 - 55. that would make it difficult for them to compete with imports on the local markets. One of such incentives is import restriction either by way of high import tariff or more direct control such as quota system or even outright prohibition. The impact of excise on the development process is influenced by the existence of such in mind that, as a result of excess demand created by import res- triction and rising monetary income, prices of .1 manufactures would tend to rise (at least in the short fun, and might even remain high unless production increases adequately), an imposition of excise under the circumstance would tend to increase price further . This would, on the face it, tend to run counter to the objective of expanding the domestic market as a means of sti­ mulating local enterprice. Local enterprise would be stimulated, inter alia, by two factors - increasing effective demand for the local manufactures and protection from competition from imports. With respect to protection from competition from imports, it can hardly be held that Nigeria's excise harbours serious contra­ dictions. It would not, if the rates of the protective import duty and excise duty imposed might be such as would give the local manufactures a comparative cost advantage on the local market. 1 1. Raja J. Chelliah was apparently influenced by this fact when he argued against a policy of making protected local manu­ factures pay the price of protection by being subjected to excise tax. See, Raja J. Chelliah: Op. Cit.. p. 418. 145 For example, if pre-tax C.I.F. value of import were £8 per unit and local cost of production were £9 an imposition of import duty of £4 per unit and excise duty of 15/- per unit would raise the post-tax prices of import and local manufactures to £12 and £10 respectively. Thus, the post-tax values of import and local manufactures are such as would give the local manufactures a com- parative cost advantage inspite of the excise dut osed. As has been shown in our discussion of the corapensa role of excise*, when excise duties are being imposed or increased on any commodity, import duties are also usually increased at a higher rate than the rate of excise imposed. Similarly, the need to pro­ tect the country’s balance of payments position has become so serious (particularly since the outbreak of the civil way) that the importation of virtually all commodities produced locally is either completely banned or rigidly controlled by import licences. Thus the protection given to local industries against competetion from imports are still preserved inspite of imposition of excise duties. Nevertheless, an imposition of excise tax leads to an increase in price, which might reduce the demand for the taxed commodity. This might be said to place an important constraint on the extent to which it would otherwise have been possible to expand1 1. See Supra, p. 1321.V 146 p ro d u ctio n . However, whether t h is i s d e s ira b le or not should be judged in the l i g h t o f the production p a tte rn o f the economy and the economic a s p ira tio n s o f the cotin t r y . As p o in ted out by P.C. A s io d u \ ’’The ro u te which N ig e r ia has adopted to in d u s t r ia l is a t io n has been to s t a r t w ith im port subs­ t i t u t i o n ” , and thus in d u s t r ia l a c t i v i t i e s have been geared la r g e ly towards the produ ction o f consumer goods. The n ext sta ge o f deve­ lopment would norm ally be geared l a r g e ly towards the p rod u ction o f in term ed iate and c a p it a l goods. There i s a l im it to which con­ sumption l i b e r a l i s a t i o n should be p erm itted i f t h is s o r t o f d e ve - 2 lopment s t r a t e g y i s not to be s e lf -d e f e a t in g . ( I t might become s e lf -d e f e a t in g in the sense th a t ( l ) an u n lim ited expansion o f p rod u ction o f consumer goods would in v o lv e in c re a s in g demand fo r in term ed iate and c a p it a l goods re q u ire d in the production o f these consumer goods - thus t r a n s fe r in g from one source o f fo re ig n exchange drainage to an o th er; and (2) i f consumption i s l i b e r a l i s e d too much i t might become d i f f i c u l t to muster enough sa vin g s to move in to the n ext sta g e o f developm ent.) 1 1. P.C. Asiodu: "Industrial Development"; A paper presented to the Conference on National Reconstruction and Development in Nigeria, March 24 - 29, 59^9, p.6. 2. I. 0. Dina: "Fiscal Measures", A paper presented to the Conference on National Reconstruction and Development in Nigeria. March 24 - 29, p. 28. 147 Furthermore, a policy can be most adequately evaluated only against the background of the economy. In her bid to accelerate economic progress, Nigeria has not been free of the dangers of inflation and it has always been the policy of the government to "prevent inflationary price rises"'*' and maintain % reasonable measure of stability through the use of appropriate instruments of policy. " Also, as a result of the disappointing role of foreign capital in financing the country's development projects, the government came to face the stark fact that much more reliance than was planned would have to be placSed \on the mobilisation of savings from local sources. 5 And, most importantly, one has to take into consideration, the fact that the country's industrial policy (in pursuance of which tariff protection and other incentives are granted) is not without priorities. "The efforts of the governments of the Repub­ lic are ....directed mainly towards those industries which (a) will utilise locally prodticed materials; (b) employ Nigerian labour; (c) provide opportunity for Nigerians to acquire technical skill and managerial experience; (d) reduce Nigeria's dependence on imports of essential goods; and (e) increase the value of 1 1. See "National Development Plan 1962-68", Handbook of Commerce and Industries. Op. cit.. p. 52. See also Federation of Nigeria National Development Plan 1962-68. (Lagos: the Federal Ministry of Economic Development) p. 356 2. A. A. Ayida, "Development Objectives", Conference of National Reconstruction and Development, March 24 - 29, 1969, P (Nigeria's) primary products through local processing It is relevant to point out here, in light of the above, one factor which has occassionally hindered the use of excise in Nigeria. Nigeria is still at the early stages of industrialisa­ tion. One finds that, with the exception of a very few industries where we have many small so called indigenous craftsmen, produc­ tion of most of the excisable commodities is -undertaken by just a few companies (in some cases by just a company). By the mere reason that these producers are few, and because of the rising level of unemployment and the pre-occupation of the government with a policy of accelerated industrialisation, these manufacturers are in a strong position with the government. And occassionally, armed with the threat of laying off their workers, they constitute a formidable pressure group against government's import and excise tax policies. At almost every turn, they have to be consulted, and very often the government has had to bend to their views as to how, and how much (if at all), tax should be levied on their products! A few examples of occasions when they have thus successfully stood against government's tax policies are given below: (l) The government had to remove excise taxes on soap and sugar confectionaeries in I960 shortly after they were levied following1 1. Statement on Industrial Policy, Ibid, 149 heavy pressure and threat of laying off workers from factory type manufactures. (2) Inspite of government's belief that because the local firms producing towel in 1965 would not be able to meet local demand adequately, some import liberalisation was needed, it was forced to increase import duty on towels to give the local firms greater protection. (3) Vigorous protests, backed by closure of factories and laying off of workers by plastic shoes manufacturers following the increase in excise duty in 1565 was one of the major reasons why excise duty was removed on footwear that year. (4) Threat by the manufacturers of reinforcing rounds in 196$ to stop producing reinforcing rounds and lay off about 200 workers if the government did not either reduce the 20$ ad valorem levy to 10$ or increase the 33g$ import duty to 50$ forced the govern­ ment to accede to the latter. Under such circumstances as this, a positive use of excise as 'a tool of economic control becomes difficult. V It is in light of these considerations one should view the role excise taxation was made to play in the economic development of the country. And in the next few pages we shall examine how far it has been possible under the circumstances to use excise to achieve economic development goals. 150 EXCISE AS A TOOL FOR STIMULATING- ECONOMIC DEVELOPMENT The attempts of the government to use excise taxation to sti­ mulate economic development can be seen from these angles: (1) Attempt to encourage saving by attempting to restrict private expenditure; (2) Attempt to tailor the pattern of private investments; and (3) Attempt to increase the linkage effects of industries by encouraging the use of locally produced inputs. Savings - ■ f Looking at the coverage of excise in Nigeria, one sees that items which feature mostly in the household budget of the very low- income households are, to a considerable extent, excluded. Whilst this category of households might be caught by their consumption of items like matches, piece goods, and bread (for which flour is an input), food items of mass consumption (like rice, yams, yam flour and unprocessed meat) which feature most prominently in their budget are excluded. As incomes rise, however, more and more of these excisable commodities come to feature in household consump­ tions, and, in larger quantities. The coverage of excise, there­ fore, is such as to ensure progressively higher liability by hous\eh>olds as household incomes rise. This is significant in two respects. Firstly, one can sgy, theoretically, that it will tend to encourage private saving by restricting adjustment into higher standard of living as income 151 level rises. There are doubts, of course, about the ability of tax on consumption to encourage private voluntary savings^. Social conventions and family commitments (immediate and/or extended) exert much more influence on private savings in Nigerian than tax . It has been shown that in spite of the con­ siderable increases in import and excise duties on consumer goods in 1964, "aggregate loan to the household sector .... rose by 60.6/ over the level of the proceeding year - (reflecting) a determination to maintain or even expand consumption, despite higher prices3„ Secondly, even where consumption is not thereby restrained, adjustment into higher standard of living would increase the range and quantity of commodities consumed which are subject to excise duties. As a result, more resources would be released to _____________________________________________________________ 1. See, for example, Richard Goode, "Taxation of Savings and Consumption in Underdeveloped Countries", National Tax Journal. Vol.XIV, No.4, December 1961, pp. 307-311. The article is also published in Bird and Oldman, op.cit.. /"Rele­ vant section can be seen at pp.233 (last paragraph) to 236_7« See also, Michael A. Wellemsen, "The effect Upon the Rate of Private Savings of a Change from a Personal Income Tax to a Personal Expenditure Tax" National Tax Journal. Vol. XVI, No.l March 19^1, pp. 98-103. 2. A. A. Ayida, in his Development Objectives", op.cit.. p. 13 ascribes the low rate of capital accumulation and savings to the growing acquisitive and materialistic instinct of the Nigerian commumity. 3. See Central Bank, Annual Report. 19&4, P*35* A seeming con­ tradiction of this view was given in the Bank's "Review of Monetary and Fiscal Policies" in 1965 (see Central Bank, Annual Report. 19&5* P»13). "The Contractive Effect of the 152 government. Public saving is thereby substituted for private savings. In so far as the tax succeeds in restraining personal expendi­ ture from rising as ouch as increase in personal income, some saving would have been made. Where the saving ;ely, however, the type of investment to which it is interest to the government, and this leads us ■ developmental goal to which excise policy coul< ve been directed - namely, influencing the pattern of investment. Influencing the Pattern of Private Investment As pointed out by Raja J. Chelliah^, "Potential economic surplus.... can be used for ’unproductive consumption’, or for ’unproductive investment’ or for productive investment'. Prom the point of view of economic development productive investment is to be preferred to unproductive investment. Unproductive investment can be defined as such investment which once undertaken *1 the Monetary and Fiscal Measures ori Demand" was said to be indicated by the "accelerated growth in aggregate private voluntary savings over the year. Time and savings deposits with commercial banks increased by 23.2^ compared with 2 1 ,1 $ in 1964." One would, however, see the restraint on loans and advances for financing consumption (see, ibid., p.10) as weilding a more dominant influence on consumption restric­ tion than the excise tariffs. 1. Raja J. Chelliah, Fiscal Policy in Underdeveloped Countries with special reference to India. (London: George Allen and Unwin, Ltd., I960), p.65. Chelliah defined 'Potential eco­ nomic surplus as "the difference between the output that could be produced with the help of employable productive resources, and what might be regarded as essential consump­ tion". 153 does not lead to further production, or does not directly gene­ rate any backwash effect on the economy. Investment in dwelling houses would fall into this category. Two of the most important factors which influence investment in houses in Nigeria are that: (i) ownership of a building is a symbol of status in Nigeria and (ii) with the fairly high rental value of houses in urban areas, investment in buildings appears to be a surer, quicker and safer way of earning high and stable income than many other types of investments with which many Nigerians are familiar. One sees taxation of products like cement and roofing sheets (, which arAe inp' uts for erection of 1 houses) as an attempt by government to discourage t|iis type of 1 unpr o du c ti ve1 inve s tmen t Encouraging the use of Loc$ally Produced Inputs Excise tariff measures have also been used by the govern­ ment to improve the linkage effects of certain industries. To this end, it has, on certain occasions, levied discriminatory duties on products using substantial amount of imported inputs while the same products, or close substitutes, produced from locally produced inputs have been subjected to relatively much lower duties. • For example, under the tobacco excise levy of 1939, ciga­ rettes containing higher percentage of locally produced tobacco were subjected to a duty of 2/ld. per thousand or lOd. per lb., while those containing lower percentage attracted a duty pf 5/~ 154 per 1,000 or 2/- per lb. This was meant to encourage the use of local tobacco. A similar justification was advanced for the high increase in excise duty on plastic shoes fl*om 6d. per pair to 3/“ per pair between April 1964 and March 19^5, while the duty on rubber shoes was only increased from 6d. to 1/- per pair It was argued that rubber shoes are produced entirely from rubber (which is produced locally) contain a substantial per centage of imported piastre input . The success of such discriminatory application of excise tool lies in its ability to raise, on one hand, the ratio of the price of the highly taxed commodity to that of the lightly taxed commodity, and, on the other hand, in its ability to alter the ratio of costs of production in favour of the lightly taxed commo­ dity. If it succeed in changing the price ratio against the heavily taxed commodity, it is expected that demand for the highly taxed commodity will fall off while demand for the other will increase as a result of the lightly taxed commodity being substi­ tuted for the heavily taxed one. If the rate of substitution is sufficiently large, it will tend to force an increase in the price of the lightly taxed commodity. This is because demand for the lightly taxed commodity will now tend to outstrip supply in the 1 1. The rubber industry in Nigeria was said then to be in a depressed state and there was need to encourage the local utilization of its products. 155 short-run. It would thus, become more profitable to produce the lightly taxed commodity and this will tend to divert investment away from the heavily taxed commodity into the production of the lightly taxed one. The ease of attaining this goal will aldo depend on the profit/cost ratios of firms producing the two products. If the profit/cost ratio of firms producing the heavily taxed commodity is very much higher than that of firms producing the other commo­ dity, the former might be able to absorb much of the tax diffe­ rence so that there might be no change in price ratio (and hence demand) after all. Futhermore, the purpose might be defeated if the same firms manufacture both commodities or if the firms manu­ facturing the heavily taxed commodity also manufacture several other commidites. As J. F. Due pointed out, it is possible when a firm is producing many articles for it to recoup the tax levied on the highly taxed commodity by increasing the price of another"''. (This will be particularly so if the demand for the lower taxed commodity is less elastic than that of the highly taxed commodity.) I. I. J. F. Due: Government Finance, op.cit.. p.272. Also F. 0. Woodward and Harvey G. Siegelman pointed out in their article "Effects of the 19&5 Federal Excise Tax Reductions Upon the Prices of Automobile Replacement Parts - A Case Study in Tax Shifting and Pyramiding", National Tax Journal. Vol.XX, No.3, 1967> PP* 250-257, that "firms which have a great preponde­ rance of items.... often behave in a manner which would indicate that the tax is treated as a fixed cost and spread throughout all items". 156 In view of this theoretical possibility, it is probably not an accident that the five footwear factories which folded up in 1965 and 1966 were producing only plastic shoes while the others, which did not, produced various other plastic products such as plastic bags, tubes, combs, plates, toys, etc., shoes such as leather, canvas and rubber footwear criminatory excise levy, in effect, merely diver favour of multi-product firms which could absorb _ ducts father than effectively encourage a substitution of rubber shoes for plastic shoes. The futility of using discriminatory excise levy to achieve this goal under the circumstance, was soon realised, and just as was done ibacco only a year after the attempt, the job was passed on to import duty on plastic. It can be:seen therefore that although the extensive use of excise would, having regard to the stage of economic development in Nigeria, appear contradictory to the country's policy of accelê rating industrialisation, Nigeria's excise and import tariffs are so structured, that the protection necessary to stimulate local enterprise are still guaranteed inspite of the excise levies. But the increasing use of excise is such as would tend to raise the price of local manufactures and thus tend to reduce the demand for them - a factor which might limit the expansion of the supply of locally produced commodities. 157 However, the increasing use of excise is justifiable in light of the country* s need to mobilise domestic savings fbr economic development, !foo much consumption liberalisation could not be allowed. Unfortunately, excise does not appear to be a strong instrument to restrain consumption vate savings. Nevertheless, it would be i mobilising what otherwise ought to have g< into public hands Furthermore, because of the materialistic instinct and the accepted social norm of the Nigerian community and the relative risklessness and profi Lty of investment in private buildings for commercial purpos s-a-vis other popularly known types of investment, excise would be a weak instrument for influencing the pattern of private investment in Nigeria against this type of "unproductive investment". With respect to encouraging the use of locally produced inputs, experience seems to have shown that it is more convenient in Nigeria to levy discriminatory taxes on inputs than on the finall product. EXCISE AS TOOL OF INFLATIONARY CONTROL shown earlier that the joint effect of import restriction and rising level of income is to create excess demand if production of consumer goods does not adjust adequately to increasing demand. This generates an inflationary pressure. 158 As pointed out by Richard Goode, "one of the platitudes of literature of economic development is that countries trying to speed up progress nearly always face inflationary dangers In her bid to accelerate economic progress, Nigeria has not been free of this danger,, Several factors have, since 1955» worked together to gene­ rate inflationary pressure in the Nigerian economy,, Firstly, various development programmes undertaken by the central and regional governments of the Federation between 1955 and 19^2 were designed to develop the tertiary sector of the economy. Thus increase in monetary income far outpaced increase in production during the period. Secondly, the 1962/68 National Development Plan envisaged a flow of foreign capital which turned out to be rather too optimistic. Of the £793 million planned capital expenditure to be undertaken by the government, one half was expected to be financed by foreign capital 2. This means an average of £66 million per-year expected from foreign sources. Only £6.9 million and £2.5 million were forthcoming from foreign sources in 1962/63 and 1963/64 years respectively.^ 1 1. Richard Goode: Bird and Oldman, op.cit. p. 237* This dan­ ger was also envisaged in the implementation of Nigeria's 1962-68 National Development Plan. See Federation of Nigeria National Development Plan 1962-68 op.cit. pp.356­ 557 2. Central Bank, Annual Report, 1964, p.ll. 3. See Table 1, "Consolidated Revenues and Expenditure of the Governments", Ibid.. p. 12. 159 The difficulties of securing these foreign inflows and the determination of the government ot press on with the plan, not­ withstanding, led to: (i) a re-organisation of priorities in the plan - in favour of projects with low off-shore costs thus shifting emphasis from production to the social sector (educatio'n ■ , h' ealth, •' et»c.)_/, and r infrastructural projects; (ii) more intensive resort to domestic sources for finance. Demand on accumulated reserves of statutory boards, hanks, and other savings institutions for loan to government increased. About 75/o of Total Domestic Loans and grants raised in 1963/64 was from banks and savings institutions . Thirdly, the increas­ ing resort by government to commercial banks for loan gave banks wide capacity for credit expansion. Total bank domestic credit increased from £73*1 million in 1961 to £100.0 million, £127.2 million and £169.3 million in 1962, 1963 and 1964 respectively1 2. Thus, volume of bank credit in 1964 was more than 200°? of that of 1961 and about 170°? of that of 1962. This rate of increase outpaced the rate of esonomic growth between the relevant period 1. Ibid.. last paragraph, p.12 2. See Table 2(a) "Money Supply and Factors Affecting Money Supply, December 1961 to December 1964", Ibid.. p. 13 160 and increased supply of money out of tuae with the rate of econo­ mic growth. Forthly, the 19&4 Morgan award of salary increases to low and middle income groups increased consuming power of the working class tremendously. All these fiscal and monetary influences generated an inflationary pressure which was contained up till 19&4, only via the escape v a l v e of increasing imports. The consequence of having to close this import v a l v e in 19&4> because of the very low level to which foreign exchange reserves had fallen, was to keep the full impact of the inflationary pressure within the economy. In light of these developments it might be wrong to regard the 1964 and 19&5 expansion in the coverage of excise duties as motivated by revenue considerations only. It is clear jfrom an examination of the commodities which became excisable as from 1964 that virtually all these commodities are direct consumer goods. And those which are* intermediate goods (like cement, paint roofing sheets, flour, tanned leather, interlock fabrics, and thread) are inputs for the final production of consumer goods.^ Since, as shown ea"r lier 2, the control of consumer expenditure is 12 1. Owner-occupied residential houses are here regarded as consumer goods. 2. See. Supra, p.124 161 a very important method of controlling effective demand, one sees that the considerable expansion in coverage of excise duties which has taken place since 1564 is motivated, inter alia, by a desire to curb the Inflationary pressure in the economy. Unfortunately, it is difficult to assess to what extent excise has succeeded in controlling As pointed out above at the same tim ;ly resorted to excise; other monetary and fiscal tools were also being increasingly used. Thus, it becomes difficult to attri­ bute precisely any result to excise. That excise revenue has increased tremendously from 0.7$ of Gross Domestic Product in 1963/64 to 2.2$ of Gross Dome duct in 1966/67 shows an increasing reduction of private purchasing power through the use of excise. But whether or not this would actually reduce inflationary pressure depends very much on the pattern of expenditure of the^government and the effectiveness of monetary instruments to control advancement of credit for consumption. However, the modes of levy mostly adopted (viz, flat rate and ad valorem rate based on manufacturers’ prices) are not such as v/ill enhance the effectiveness of excise as a means of • con­ trolling the inflationary pressure. We have suggested already 1 See, infra..p„ 162 that a retail-price-based excise duty would perform the task more effectively^.1 1. Unfortunately, bringing the point of levy down to retail level in Nigeria raises a host of administrative problems, a fey/ of which are mentioned below, in cases of traders who undertake both wholesale and retail businesses, there will be the problem of distinguishing their retail from wholesale activities. The fact that retailing of a good number of products is done largely by small-scale and illiterate traders, v/ho do not and cannot afford to employ clerks, raises the problem of the unavailability of records. Since these people would thereby not be able to keep records, assessment of excise revenue would be difficult and evasion v/ould be rife. Furthermore, it is difficult to define a retail unit in some cases (e.g., cigarettes, matches, biscuits) because at certain stages along the dis­ tribution line, it becomes difficult to know exactly who is buying for consumption and who for re-sale. In the alternative, excise duties could be based on retail price while the manufacturer remains the tax payer. This has been the mode of levy on cigarettes since 1966. With this approach,compliance cost will rise as producers will now be obliged to ensure that their declared prices are maintained on the market. However, this is easier to administer than the former method (which is akin to a retail sales tax), and therefore, given the market struc­ ture in Nigeria, is to be preferred. 163 CHAPTER 5 REVENUE PERFORMANCE From the foregoing, it would appear that of the policy .goals to which excise had been directed in Nigeria, the most effectively fulfilled has been the revenue objective. We shall therefore examine Nigeria's excise reveernrue performance a Tittle more closely. As can be seen from Table 1,..1l,y r^evenue derived f.r...o....m.... excise has .been ;r,ising gradually and consistently over the years. It rose from.£0.023 million in 1939/^0 to £1.15 million in 19^8/^91 £^.^ million in 1958/59? £9*8 million in 1963/6 ,̂ *and £35*7 million in 1966/67» As a result of the outbreak of civil war in the country in 1967? excise revenue fell in 1967/68 to £2^.9 million but rose again to £28.2 million in . 1968/69. * . BetiiVee.il' fiscal y. . ears. 19^5/^6 and 1966/67, excise revenue rose at an average annual rate of 21 >• Between 19^5/^6 and 1962/63$ however, the annual average rate of increase was only l k . 3%0 A breakdown of the year to year rate of change in excise revenue from 1959/60 to 1968/69 is shown in Table 5.1 (columns II and III). It shows that between 1959/60 and 1962/63 annual rate of increase ranged only between 17$ and 11$, 164 TABLE 5.1 COMPARATIVE- ANNUAL RATE OF GROWTH OF EXCISE DUTY, IMPORT . DUTY AND TOTAL FEDERAL GOVERNMENT TAX REVENUES 1959/60-1968/69 YEAR CHANGES IN CHANGES IN CHANGES IN * EXCISE REVENUE IMPORT REVENUE + TOTAL FEDERAL LJ GOVERNMENT TAX REVENUE II III IV VI VII £* million % of £' million V of ,£' million! % of Previous Previous Previous Year1s l*ear' s t Year's Yield Yield Yield 1959/60 +o.73 +17 o ' +18 +6.8 +11 1960/61 +0.39 +12 +14 +13.5 +19 1961/62 | +0.66 +12 +2 .2 1 +3 +2.4 o + 31962/63 +0.68 +1 +3.7 7 +8 +1 .7 + 2 1963/64 +2.76 9 +2.69 • +4 +7.9 + 9 196V 65 +3.77 ^ +38 +19.86 +31 +24.8 +26 1965/66 ,'r +52 -7.22 - 8 +4.5 + 42 1966/67 +73 -17 .6 2 -23 -3.6 - 3 1967/68 %10 .77 -3 1 -5.18 - 9 -5.4 - 4 1968/,669 V I -3 .33 -13 , +4.66 +8.6 i n.a. n.a. n.a. means Not Available * Total Federal Government tax revenue includes import duty, excise duty, export duty and Direct Taxes revenues. 165 But for the four years between 1962/63 and 1966/67* annual rates of increase 'were 39#* 38%, 52# and 73% respectively* An identical trend can be seen in the changes in the proportion of excise revenue to Gross Domestic Product (G.D.P.) As Table 5*2 shows, the proportion of excise revenue to G.D.P. rose from a fairly constant level of about 0.3°% to xn 1963/64, 1.3356 in 1965/66 and 2.2% in 1966/67. The 1963/64 increase was accounted for bOy tvhe tremen­ dous increase in productive capacity and greater capacity utilization in the beer and cigarette# industries. While a stout factory went into production in 1962, two beer factories went into production in 1963» thereby increasing the number of factories in this industry to four. Production of beer and stout increased by a$>out 87 •5% in 1963* Similarly, pro­ duction of cigarettes Vent up by 20%. The 1964/65 incre ase was however largely responsible for by the expansionC ofv tax coverage from 3 to 22 commodity cate­ gories (see! Table 2.1). Although none of the 1964 additions is particularly highly productive of revenue (in comparison with, say, cigarettes and beer), they together, yielded £2.86'million (about 20# of total excise revenue for that year). The expansion of tax coverage in 1965 involved only 6 additions to the number of commodities taxed but included one high revenue-yielding item - oils (Motor oils ahd Diesel) 166 *Gross Demestic Product at current prices. SOURCES: (l) Economic Indicators. Vol.^, No. 12, December 1968, Federal Office of Statistics, Lagos. (2) Column III has been extracted from our Table E.5. 167 which yielded £3*99 million (about 19.4$ of total revenue for the year). Total contributions of commodities other than beer, cigarettes and oils almost double (increased from £2.86 million to £4.84 million) reflecting increase in production of these other commodities. While expansion of tax coverage was also not much (only 3 new commodities were added) in 1966, there was a tremendous increase of about £1 5 . 1 million in excise revenue in 1966/6? (about 73/o increase) over that of the previous year. This was accounted for to a considerable extent by a substantial increase of £10.15 million in excis◄e r'eevenue from Motor Spirit and Diesel and an increase of £3.65 million in revenue from the other products besides cigarettes and beer. (The latter C avbo ut 75%, over that of the previous year.) These increases, as in the preceeding year, indicate increases m proe^duction. All these show that tHe upswing in rate of increase in excise revenue from financial year 1963/64 has been caused, not only by the expansion of tax coverage, which started in earnest only in 1964 but also by considerable expansion in production which took place during the period. A comparison of changes in excise and import revenues is shown in Table 5*1* Although yearly increase in excise revenue was lower than yearly increase in import revenue up 168 till 1964/65, (S e eC hart 4), relative increase in excise revenue has remained higher since 1961/62 (See Chart 5) • After a peak of 31% rate of increase in 1964/65, however, import revenue started to decline. Although the rate of reduction in import revenue was much lower in 1965/66 and 1 1966/67 than the rate of increase in excise revenue, absolute fall in import revenue each year exceeded absolute increase in excise revenue... This is indicative of the fact that total increase in excise revenue has not been compensating fully for total fall in import revenue* But bearing in mind (l) that the coverage of import duty is much greater than the coveroagne of excise tax (or, to put it more precisely, that excise tax did not cover the whole range of import substitution industries) and (2) that the margin by which total fall in import revenue is greater than total increase in excise revenue is very small, one sees that the commodities subjected to excise tax have actually been yielding more than enough to compensate for loss of import duties on them. ! :an also be seen from Table 5*1 (and Chart 5) that excise revenue has been increasing at a much faster rate than 1* This is further indicative of the fact that in spite of the excise levies, production of these commodities have progressed more than necessary to substitute for quanti­ tative reduction in import. 169 ^ jjg a - g J g jjg jg ™ **BISK BPW.inn dfiuatt yo s reorfe zCrhaaen sg. m r n i in tv>tal 171 the rate of increase iin total Federal Government revenue from all tax sources. For example, while excise revenue increased at an average annual rate of 3 1 *8$ from fiscal year 1959/60 to 1966/67, total tax revenue increased only at an average rate of 8*9$. Relative Contributions to Excise Revenue The nature of excise duty revenue can even be more under­ stood by examining the extent to which particular commodities have contributed to total excise revenue. Thus up till 1963/64, virtually all excise revenue was still being derived from cigarettes and beer only. As can be seen in Table 5*3i in spite of the addition of a few commodities to the range of excisable goods in 1960/61 cigkrettes and beer still contri­ buted 93*9%*of total excise, revenue. By 1963/6^ it had risen to 97.26%. Since then, however, the two commodities had started to lose ground slowly and in 1966/67, only cigarettes - retained its position as the biggest source of excise revenue. Beer was beaten to the fourth place by motor spirits and diesel oil. However, between them, the four products: cigarettes, beer, motor spirits and diesel oil, contributed 76.6%, 76% and 68.6% in the respective years from 1965/66 to 1967/68. The low percentage of 1967/68 was accounted for largely by the fact that the figures for motor spirits and diesel oil were for seven months only as excise revenue from 172 TABLE 5.5 PERCENTAGE CONTRIBUTIONS OF SELECTEE COMMODITIES TO EXCISE REVENUE 1952/53 - 1968/69 YEAR , CIGA­ BEER , MOTOR RETTES F DIESEL 1SPIRITS : f ERS ^ -------------------- I 1952/53 98.23 1.77 0 • p • 1953/54 96.34 3.66 0 • P 0 195V55 96.17 3.83 • • P • 0 1955/56 95.69 4.31 * * • . 1956/57 93.86 6.14 0 • 1957/58 91.07 80 93 • • • • 1958/59 89.66 10.34 • • • 0 1959/60 83.48 16.52 • » • • 1960/61 74.36 19.54 • • 6.10 1961/62 m 73.56 2 1. 7( s * * • # 4.73 1962/63 70.52 27.08 . » • • 2.40 1963/64 60.80 ^6.46 • • • • 2.74 19 64/65 48.20 30.87 • 0 # • 20.93 1965/66 3 5. *2! . 79 8.79 10 .61 23.37 1966/67 22o95 13.39 2 1 .6 1 18.07 23.98 +1967/68 25.19 18 .53 1 3 .1 5 * n . 69* 31.44 I + J -1968/69 t26 .17 17.42 • • n e g . 56.41 — •• meahs nil; neg. mfeans negligible. + Bxdludes figures for the three Eastern States Figures are for the first 7 months of 1967/68 expressed as percentage of total. They represent 19.66% and 17.55# respectively of total revenue for the relevant 7 months. SOURCES: Accountant General of the Federation Reports for the various years up to 1966/67; " Central Bank of Nigeria, Research Section, and Federal Official Gazette, No. 39, Vol. 56 of 1969. 173 them ceased to be forthcoming in October 1967 as a result of the civil war In the country. It can be seen, therefore, that the revenue yielding capacities of these four 'core' commodities have been the propelling force behind changes in excise revenue and it will be interesting to examine them a little further. MOTOR SPIRIT AND DIESEL OIL Arguments for and against tax on petroleum and diesel oil usually centre around highway maintenance and application of cost-benefit principle . The arguin' ri.ll* not be gone into here since highway maintenance has not been a strict policy objective for the levying of excise duty on these pro­ ducts in Nigeria. Although, the mining of petroleum in commer­ cial quantities in Nigeria has begun since 1958, refining of crude petroleum was not commenced until 1965* Before then, motor spirit and diesel had to be imported. Import duty collected on motor spirit and diesel oil in 1963/6^ were £6.05 million and £^.11 million respectively. These, as shown in Table 5*^$ rose to £7.13 million and £5«5^5*illion respectively in 196^/63. Effective import substitution would have meant a reduction in government revenue to this extent. But since quantities &f both c 1 1. See, for example, A. R. Prest: Public Finance, op.cit., pp.372 - 373; R. A. Musgrave; Theory of Public Finance, op. cit., p. 177 and J. F. Due; Government Finance, op. cit., pp. ^13 - 4l*t. 174 TABLE 5.4 IMPORT AND EXCISE REVENUES ON MOTOR SPIRIT AMD DIESEL 19^3/64 - 19bS/G9 (£'million) figures in respect of the Eastern States September 19&7 n.a. Means 'not available' ..Excise revenue that year was only £56 SOURCES: The same as for Table 5.5 175 Commodities imported fell only slightly that year, import revenues on them fell by only £1 . 1 5 million on motor spirits and £1.50 million on diesel in 1965/66. These were more than compensated for by excise revenue yields of £1.8 million on motor spirits and £2.18 million on diesel oil. The process of import substitution was virtually ""completed however, in 1966/67 when imports fell so low as to yield net revenues of only £0.07 million from motor spirit, whilst repayment which had to be made on diesel exceeded the import revenue collected by about £0.5 mill^-eju On the contrary, excise revenue from both rose to s j ) * million and £6.^3 mil­ lion respectively. These exc ields were just about the to total revenue from import anid e:xcise duties on motor spirits and diesel in the previous year. Production and flow of excise revenue on both products has been disrupted since 1967 as a result of the civil war in the country. It can be expected, however, that when the local refineries go into production again, they will be able to meet local demand fully as' the data for 1966/67 indicate. We can therefore estimate from import data pre-1965/66 what is likely to be the trend of excise revenue on these products after pro­ duction must have been resumed in Nigeria. If we take quantities of these products imported pre- 1965/66 as estimates of demand during that period, we can see 176 TABLE 5.$ QUANTITIES OF IHBORT AND IMPORT DUTIES ON MOTOR SPIRIT AND DIESEL 1958 - 1964 1 I 196!/15• -------- 1!1 1958 1959 960 1962 1 1963 1964 Motor Spirit (million gallons) 6l0 6 71.3 77.2 7 3 .1 83.5 89.0 Diesel (million gallons) 40.6 57.1 65.5 7 1 .3 71.9 84.3 , c f Import Duty* (per gallon) lid. lid. 1/4 d 1/4 d 1/8 d 1/8 d 1/9 d __________/ & - *The same duty applies to both products. SOURCES: Annual Abstract of Statistics, Nigeria, 1966, (Federal Office of Statistics, Lagos). Federal Gazettes for the various years. 177 from Table 5*5 that demand for motor spirit rose from 61.6 million gallons in 1958 to 89 million gallons in 1964. This means that over the period, demand for motor spirit increased at an average annual rate of 6.7% per annum. Similarly, demand for diesel grew from 40.6 million gallons in 1958 to 84.3 million gallons in 1964- an annual average rate of growth of 13*3%* Thus, in spite of the fact that import duty in 1964 was almost double what it was in 1958, demand for spirit in 1964 was 144.3% ttiat of 1958, while demand for diesel was sli­ ghtly more than double what it was in 1958. This remarkable increase in demand for the products, in spite of increasing import duty stems from the fact that demand for motor spirit and diesel oilO dyerives largely from demand for motor vehicles and locomo- tivesl And the latter increased tremen­ dously over the period* Tf* demand for inotor vehicles and loco­ motives continues VM-i se as fast as it did &ver the period 1958 - 1964, we can say, ceteris paribus, that demand for motor spirit and diesel would also continue to grow at these (6.3% and 13% per annum respectively) rateso In that case, if excise duties on these products remain unchanged, and rate of produc- tio n 0/ the local refinery (and any new one that may be set up) adjusts adequately to changes in demand, one could expect that excise revenue on the products would also grow at these rates. 178 Cigarettes Excise revenue derived from cigarettes has increased tremendously over the years and it contributes the greatest share of excise revenue, (See Table 5*3)* However, there has been a steady decline in percentage contribution to total excise revenue and this can be explained by the broadening of coverage of excise and the faster rate of change in contribu­ tions by beer, motor spirit, and diesel. Changes in rates As can be seen in Table 2.2, sii le change over, in 19 5 1, to ad valorem mode of levy, the rates of excise duty on cigarettes had remained fairly* Stable till the end of the * fiscal year 1965/66. There were only two changes during that period. The first was in 1956 when cigarettes having a weight of not more than 21/2 lb. per thousand were divided into two classes. Those weighing not more than 2 lb. were subjected to > duty at 30% ad valorem while those weighing more than 2 lb. but not more than 21/2 . l, bv. per thousand were further re-classi­ fied - with respect to price. The cheaper category - those costing less than or equal to ?0/~ per thousand - were to retain the original rate of b0% ad valorem while rate on the second category - costing more than ?-/- per thousand - was increased to 179 The first round of general increase of rates occured at the end of March 1965 when all rates went up by 5% each. This increase lasted only two months and in June the whole structure of excise 03a cigarettes was changed. By this change all types of cigarettes were classified into four classes with both weight and price demarcating each class brack 5 ^ The lowest class consisted of cigarettes weighing not mo'>re than 1 lb. and costing not more than 25/- per thojuusCan d.' The next class consisted of cigarettes weighing not; more than 21/ lb. and costing above 25/- but not more than 50/- per 1,000. The third class comprised of cigarettes weighing not more than 21/ lb. and costing above 50/- lot more than 125/- per thousand. The fourth category comprised of the most superior cigarettes weighing more than 2/2 lb. and costing more than 125/- per thousand. Each class was then subjected to a combined ad valorem and flat rate structure. These rates were 20% plus .6 3. per thousand on the first class, 30% plus 9d. per thousand on the second class, ^0% plus 1/- per thou­ sand on the third class and 50% plus l/6d. on the fourth 0 l a s 8 - 1 Taking a class bracket as a unit, one sees that this last rate structure was progressive. But, within each class, the flat rate introduces a regressive element as the flat rate 1 . These changes are clearly set out in Table 2.2 above 180 would constitute a higher percentage on the selling price of the cheapest ones in each class than on the selling price of the more expensive ones. One cannot actually posit whether or not, this structural change has an overall effect of increasing or reducing the rates above what they were. The change in the definition of selling price to mean retail price rather than manufacturers' ex-factory pri«® Siso makes comparison with the former rates more difficult. Since this structural change was introduced, there have been two changes in rates. These wer^^he 5% surcharge levied in 1967» and the 'Jd. per packyet cof twenty' surcharge of 1968 io Unfortunately, the 1968 surcharge made the whole structure rather regressive is, as a result of the changes, the rates increased to equivalents of 72% ad valorem on the cheapest and lightest cigarettes and of just a little more 7 A than 50% on the most expensive and heaviest cigarettes. Effects of Rates Changes on Revenue The precise effects of changes in rates of duty on demand arid revenue are not easy to isolate. This is because of the constant re-classifications - especially as data are not available in respect of changes in production of each category.1 1 . It is, however, intended by the government that the surcharge would only last the period of national emer­ gency. 181 In 1956, when the rate was lowered on the lightest cigarettes, excise revenue from cigarettes went up by compared with the average rate of of the preceding four years. (See Table 5*6). Similarly, in 1959/60, when rate of duty on the more costly middle class cigarei those weighing more than 2 lb. but not more than ,b. and costing more than 70/- per thousand - was ra: y Q r o k8%, total excise revenue from cigarettes went wp by compared with 3 .8$ of the three preceding years. . vIf we assume that changes in the amount of excise tax payable arr reflected fully in price, then the former (where rate of increase in total revenue went up when lowered on the poorer cigarettes) suggests a high price elasticity of demand for the poorest c i g a r e t t e s t h e other hand, the latter (where rate of increase &in tcotal revenue went up when tax was in­creased on the r quality grades of the middle weight category of cigarettes) suggests low price elasticity of demand for̂ 'lSafe higher grade cigarettes. er, one should not lose sight of the fact that in 1956 and 1958 new cigarettes factories started production at Port Harcourt and Zaria respectively. The resulting increase in productive capacity might well have been largely responsible for the 1956/57 and 1959/60 high rates of increase m revenues. 182 TABLE 5.6 CHANGES IN EXCISE REVENUE FROM CIGARETTES AND BEER 1952/53 - 1968/69 • 6 means less than 1% 183 An examination of revenue changes between 1961/62 and 1965/66, when there were no changes in rates reveals that revenue yield from cigarettes increased at an average rate of 11# per annum* During this period, Gross Domestic Product at 1962 prices grew at an average rate of per annum. If this rate of growth of Gross Domestic Product is taken as an estimate of the rate of growth of National Income,Jit means that excise revenue from cigarettes has been*. rising at a much faster rate than rate of growth of Inco me.V It is realised, of course, that increase in the consump­ tion of cigarettes cannot be explained by increase in income only. It does reflect, for example, a whittling down, in Nigeria, of the restraining-influence of medical (the threat of cancer), social and Lous antagonism to the habit of smoking - a triumph for the power of advertisement . 1 1. Cigarettes advertising in Nigeria, mostly done by radio, is usually geared towards boosting the personality of people wh# ismoke particular brands, (e.g. There are adver­ tising slogans such as: "Smart men smoke 'Mark Ten*", "Flayers* Gold Leaf is cigarette for the V.I.P.n, "You are an'important man if you smoke S.M." (Sweet Menthol) and so on); attributing to particular brands certain wonderful effects they are supposed to have on people who smpke them (e.g. "VARSITY helps you to concentrate, Be a N^g^sity man, Enjoy that fine clear-head feeling"), or attempting to create an image of taste (e.g. "Target for Taste", "Green Spot is good and cool in the mouth"). These can be seen as appeals to the self-conscious, those who feel they need an aid to keep going mentally, the curious and the imitator. Needless to say, these categories of people will embrace a substantial propor­ tion of the population as well as cut across the income strata of the society. 184 On the other hand, it cannot be denied that the choice of qua­ lity of cigarette a smoker will smoke is influenced, to a con­ siderable extent by the social and/or economic class he belongs to. Therefore, both initial choice of brand and subsequent brand switching are likely to be considerably influenced by the smoker's income. Thus, income elasticity of demand for cigarettes is likely to be fairly high. Therefore, if the number of cigarettes the smoker smokes does not increase, his contribution to excise revenue increases as%a result of the switch to higher quality and more costly brands. From the above, it can be said that in Nigeria, cigarettes exhibit the following characteristics: (a) high income elasti­ city of demand, (b) low price elasticity of demand with res- pect to the higher qualitoy grades, 1 and (c) high price elasti- city of demand with resect to the lowest quality grades"1”* As shown in our discussion on issues of theory, the first two characteristicCs avre important for purpose of maintaining a high, stable arid increasing revenue on cigarettes. This is because since higher quality cigarettes'.have low price elasti­ city of demand, it would be possible to subject them to a high 1. _While Professor A. B. Prest, in a similar study based on United Kingdom, concluded that "tobacco would seem to pass the test of inelastic demand", he was sceptical about income elasticity of demand for tobacco being high. See A. P. Prest, Public Finance, op.cit., pp. 369 - 370* 185 and progressive rate structure without demand falling off* On the other hand, it would be inadvisable to levy too high duty on the lowest grades of cigarettes. This conclusion is borne out by the present experience with the f3d. per packet of twenty1 surcharge* One of the manufacturers^ who responded to our questionnaire, remarked that the surcharge Hha& made it difficult ......to produce inexpensive cigar Beer Next in importance to cigarettes has been beer. Up till 1965, it made the second largest contribution to excise reve­ nue only dropping to the fourth position in 1966. Table 5*3i above shows that up to 1963* the percentage contribution increased from year to year./* As in the case of cigarettes, the deduction in percent^ ê contributed (since 1964/65) has resulted from the considerable broadening of excise tax which has been taking place since 1964. However,•, as can be seen from Table 5*6, excise revenue on beer has been rising consistently except for 1967/68 when, as a result of thecivil, war which stopped the flow of excise revenue from the beer factories situated in the Eastern States, excise revenue on beer fell. And, as can also be seen from the table, revenue from beer consistently increased, up till 1964, at a much higher rate than revenue from cigarettes. 1 1 . This company manufactures a considerable proportion of total cigarettes supplies in Nigeria. 186 However, changes in duty levied on beer has been very fre­ quent - much more frequent than changes in duty on cigarettes. Within the eighteen years between 19^9 and 1967? excise duty on beer was changed six times thereby raising duty to more than five times the initial levy of l/3d. per gallon. (See In 1959, duty on beer was four shillings per gallon and by 1966, it had gone uj> to ?/- (i.e«^i 75$ increase), while revenue from beer had increased from £0.85 million in 1959 to £^.84 million in 1966 (i.e. an increase of over 4 8 0 $ ) . Similarly, between I96/0 Vand 1966, duty went up from 5/6d. per gallon to 7/- per gallon ( a 27% increase) while revenue increased fr^^£l. 11 million to £ k .8 k million (an increase of over 300$).. In both cases it will be seen that revenue increa^d at a much higher rate than changes in rate of duty. This tends to suggest that increase in revenue may not be explained by changes in duty only. However, the regression of excise revenue on beer on the rate of duty between 1952/53 and 1966/67 yields equations: Y = -1*367 + 0.058X where Y = estimated revenue yield from beer (in £fmillion) and X = rate of excise duty on beer (in pence, per gallon). The graphical representation of this equation is shown in £ x c » s e ^ .e x je n u e f>o *i 8 188 Chart 6. The square of the correlation coefficient is given by r 2 = 0.79* This statistical result tends to indicate that only about 21$ of excise revenue yield from beer is not explained by the excise duty levied. To establish further, the dominating influence of changes in the rate of excise duty on the excise revenue from beer, we have made an attempt, in Table 5»7 to isolatethe effect bf production on total excise revenue from beer^ »3?b do this, we have held the initial (i.e. 19^9) rate of^duty of l / 3 d . per gallon constant. Then, by dividing excise revenue from beer each year by the relevant rate of for the respective years, we have obtained an estimate of the year to year pro­ duction for the period 1952/53 to 1966/67* Then we have, thereupon , multiplied these production figures by the initial rate of l/3d* per g allon to obtain an estimate of what revenue would have been each ̂ successive year if rates of duty had re- mained constant, This , is* shown in Column III.) The diffe- rence between ’these estimates and the actual revenue for the respective years we have attributed to effects of changes in rate s> { This is shown in Column V.) Columns IV and VI merely show what percentage of total excise revenue from beer figures in columns III and V respectively would be. The two percent­ ages in each row, sum up to 100'. A diagramatic representation 189 TABLE 5.7 EFFECTS OF CHANGES IN EXCISE DUTY AND PRODUCTION ON EXCISE REVENUE FROM BEER, 1952/55 - 1966/67 1 ? ' i I II III IV VI FISCAL DUTY PRODUC­ % ’ J L % YEAR i TION C j m - n (beginning 1 (pence EFFECT* (of total (of total 1st April) per gal.) revenua EFFECT* revenue £* million from beer million from beer) 1952 15 0.054 * ’ 1955 21 0.088 0.035 28.5 1954 21 0.092 0.037 28.7 1955 . 21 0.114 71.7 0.045 28.3 1956 35 0 . 1 ^ ? 45.2 0.144 54.8 1957 33 <175 45.4 0.210 54.6 1958 33 0J206 45.4 0.248 54.6 1959 48 J 0.264 3 1 .2 0.581 68.8 I960 66 Ay 0.253 22.9 0.854 77.1 1961 0.315 22.7 1.072 77.3 1962 * 0.358 18.7 1.5 5 2 8 1.3 1965 1 0.671 18.8 2.908 8 1.2 1964 ^ 84 0.758 18 .1 3.432 81.9 1965 84 0.799 17.9 3.676 8 2 .1 1 * 9 . 84 , 0*866 t 17.9 , 3.977 8 2 .1 “"Effect of changes in production assuming excise duty is constant at 1952 level. +Comulative effect of changes in rates of excise duty. iso H H H f i J a s s s Years 191 of columns III and V is shown in Chart 7* It can be seen that excise revenue would have increased from £0.05*f million in 1952/53 to only £0.253 mil/lion itt 1960/61 and only £0.866 million in 1966/67"'" if excise duty had remained at the 1952 level. On the other hand, the cumu- lative effect of the increases in excise duty has beaen* to increase revenue by amounts increasing from £0.35 million in 1953/5^ to £0.85^ million in I96O/6I and £3 3 m llion in 1966/67. And column VI shows that the cumulative effect of increases in excise duty has been to increase the proportional influence of duty on revenue from beer from 28.5% in 1953/5^ to 82.1% in 1966/67o It can be seen that this result is in co'nformity with the high correlation shown above. One can conclude from these, therefore, that increases in excise duty has aided excise rei^enue more than any other factor. It is obvious Vthat changes in production has also had its impact. As can be verif*ied from Table 5*8, production of beer has been increasing steadily both to substitute for import /ell as meet growing demand. However, the year to year ' Q ement of total supply would seem to indicate a produc- capacity constraint on total supply. For example, when 1 1. On the contrary, it could validly be argued that if excise duty has not been increased, it might have resulted in greater consumption. But whether or not this would have been reflected in excise revenue would also depend on the rate of expansion of production. 192 TABLE 5.8 COMPOSITION OF TOTAL SUPPLY OF BEER 1961 - 1968 (N'OOO gallons) Annual Abstract of Statistics, Nigeria, 1965; Federal Office of Statistics, Lagos. 193 imports fell by 217 million gallons in 1962, local production went up by only 0*7 million gallons, thus causing a total fall of 2 million gallons. The total fall of 0*7 million gallons of 1965 can be similarly explained. Argument of productive capacity constraint might seem reasonable in the 1962 case on the ground that t i 2 facto- ries which had been producing since 1959 might nsotV hVi aiave been able to sustain adequately the sudden windfall, of demand for locally produced beer caused by the drastic fall in import in that year. But the same cannot definitely be said of 1965. Productive capacity in that year was 16.6 million gallons - meaning the industry would st l,ave been able to exceed the year's production by about 'i of what it actually produced. However, in 1966, there was enough expansion of production which compensated for the fall during 1965 and thus tends to suggest that productive capacity does not actually constitute a major constraint on excise revenue from beer. In that case, the year to year trend might be taken as indicating a time lag of as much as one year for adjustment of production to changes in demand. If this is so, the question turns on the behaviour of demand for beer. From the sixth column of Table 5*8, it can be seen that the total supply of beer (both from import and local TI See Central Bank, Annual Review, 1965, p.25» 194 factories) increased from 12.8 million gallons in 196l to only l^.J gallons in 1966. This represents an average in­ crease of only 3*05$^ per annum. During that period, there was an average annual increase of k% in Gross Domestic Pro­ duction in economy. If these increases can be taken as esti­ mated of changes in demand for beer and increase in National Income respectively, this would tend to suggest that the in­ come elasticity of demand for beer is low\ This, therefore, explains the low impact of production on'excise revenue from beer as production has expanded to a considerable extent, only to substitute for fall in impo rts3 ’a n d , only to a lesser extent, to meet expanded demand. . j r More importantly, now thatNfche import composition of total supply is very low, assuming the rate of excise duty is left unchanged, excise revenue from beer would continue to rise only at a rate%less than the rate of increase in income. This follows from "the fact that income elasticity of demand is likely to be low. However, if we assume tl^^ "increases in excise duty have been passed on to consumers by way of higher prices, the fact that consumption1 of beer has continued to rise in spite of increases in excise duty gives an impression that price elasticity of demand for 1. A. P. Prest has also shown that the income elasticity of demand for beer in the United Kingdom is low. See op. cit.,p.3 7 1* 195 beer is also likely to be low. In that case, it might be possible (up to a lipit) to maintain a steady rate of in­ crease in excise revenue from beeac; equal to or even greater than the rate of increase in National Income, by raising the 196 CHAPTER 6 SUMMARY AND CONCLUSION By and large, excise taxation has become a veryj irnpor- tant source of government revenue in Nigeria. It has also become a potentially powerful instrument of economic policy in Nigeria. Although excise was first introduced in 1933i not more than four commodity groups were subject to excise until 1964, and the use of excise was not geared to any goal other than to supplement government revenue from other sources. Since 1964, however, there has been increasing use of excise. Certain factors have made this increasing use of excise possible. Firstly, since the beginning of the 1960s there have been considerable growth of import substitution Industries (particularly with respect to production of consumer goods) under the protection of strict import restric­ tion. Secondly, except for cigarettes, beer, portable spirits, matches and petroleum spirit and diesel (on which excise duties were levied from the time production started), excise duties are levied at stages where local production forms a substantial proportion of total supply. Thirdly, import and excise tariffs are so designed to give local production 1 9 7 comparative cost advantage on the local market. Fourthly, monetary income has been growing faster than production, thus demand for consumer goods have remained high in spite of the increasing use of excise. The motive force behind the increasing use of excise in Nigeria has largely been revenue. Thus excise was=initially used merely to supplement government revenue from other sources. Later, it was increasingly used, in addition, to compensate for loss of import revenue that would necessarily result frc restrictions imposed on imports in the government's attempt to arrest the adverse trend in the adoiuntry's Balance of Pay­ ments. In addition to the revenue objectives, excise has been used in Nigeria as part of a package deal, to restrain pri­ vate consumption and thus, on one hand, encourage savings, and, on the other hand, reduce inflationary pressure Caused by excess demand. Also, the imposition of excise duty on building mate^yals can be seen importantly as an attempt by the government to discriminate against investment in private ■ buildings. Furthermore, it has been attempted through the use of discrimanatory excise tariff to encourage the use of locally produced materials inputs in preference for imported imputs. With respect to the revenue objective, a considerable 199 use being made of excise, it is likely to take the place of import as the largest source of revenue for the Federal Govern­ ment of Nigeria within the next few years. The use of excise to achieve other economic objectives has, however, not been very successful. Because of the grow­ ing acquisitive instinct of Nigerians, excise appears to have been an ineffective instrument to restrain consumption m a bid to encourage private savings. Nevertheless(it could be used effectively to substitute public savings (in the hands of tiie government) for private savings. Similarly, Nigeria's excise as it is, would appear to be weak for controlling inflationary pressure. Sinae inflationary pressure in Nigeria emanates largely from excess,,, demand, excise tax designed to mop off such excess demand should be directly related to the retail price as opposed to manufacturer's price. Thus, as much as possible, excise tax should be based on retail prices rather than manufacturer's ex-factory prices. More import tantly, it would appear that the use of monetary and expendi- ture instrvuments would be more effective in controlling in­ flation in Nigeria than the use of excise. With respect to the use of excise to encourage the use of locally produced inputs in preference to imported inputs, experience has shown that it is better to levy discriminatory tax on the inputs than on the end product. 200 Although substantial progress has been made, there are still some factors inhibiting the use of excise in Nigeria. Firstly, because industrialisation has not progressed very far in Nigeria, most of the industries comprise of only very few manufacturers. Thus it is easy for the manufacturers to stand effectively in the way of the government esjc lecially where the government's excise tax policy seems unfavourable to them. Secondly, in the few industries where there are many local craftsmen the problem of excise control is high. Thirdly, the administration of excise gives much room for evasion and avoidance* In particuloar/f the practice of station ing an officer permanently wi irm for a very long time on end gives room for collussion between the manufacturer and the stationed tax official to evade tax* Also, the light con­ trol on the excise factories in which officers are not perma­ nently stationed places too much reliance on the honesty of ' . o manufacturers whereas this'honesiyyls not firmly demanded, as it should be under such a system, by prompt subjection of defaulters to deterrent punishment. urthermore, granting that some small scaled producers of excisable commodities should be excluded from paying the tax on the ground that the revenue that would likely accrue from them would be so small as not to worth the trouble and cost of collection, there is no definite criterion on which 201 such small scaled producers are exempted. The strategy usu­ ally relied on of 'giving the carrot and then applying the stick' will only succeed in getting in those manufacturers who stand to gain from the various concessions granted by the government e.g. those who import, or have to pay a sub­ stantial amount of excise duties on,their commodi ty inputs* In cases where the import and/or excise duties payable on inputs are altogether lower than excise duty payable on the final output (e.g. where only a small part of the inputs are dutiable), the manufacturer would t ic:eeep outside the excise tax net simply by not g for concessions. Further­ more, the success of such a strategy also depends very much on whether or not the manufacturers know of such concessions. The situation, therefore, arises whereby some manufac­ turers (e.g. in the furniture industry) openly keep outside the excise tax net while their counterparts whose products are no better & & irho do npt operate on a larger scale, by any standard of measurement, are liable for payment of excise tax. T:. is, to say the least, gives an impression that excise tax is not being effectively enforced, and might easily dest­ roy the morale of those who comply and epcourage evasion. These shortcomings caused by the administrative defi­ ciencies! the structure of industries, and the excise tariff structure can be seen in effect as: 202 (a) making for loss in excise revenue through evasion, (b) making NigerieP a excise appear to be a tax on honesty and bigness, and, (c) undermining the effectiveness of excise in achieving economic policy goals in Nigeria. We have made some suggestions aimed at removin ise shortcomings or at least reducing their adverse :s on excise taxation in Nigeria. Firstly, exemption jof factories producing excisable commodities from liability for payment should be based on a definite quantitative criterion. Such criterion could be based on labour or capital employed or the average volume of output per pe 8 ? time. Of these, we are of the opinion that the labour basis is the least objec­ tionable because, given the predominant method of production in any industry, it is easy to ascertain the labour require­ ment for any scal^ ®f bperation in any factory in the industry. Having regard to the peculiarities of the industry for each excisable product therefore, a specific lower limit of labour employed kJould be set on which exemption from payment of excise could be based. This should be supplemented by a proper surveil lance by the Department of Customs and Excise to ensure that all the factories which, according to the criterion set, should operate under excise licence do so. Furthermore, as much as possible, import and/or excise duties payable on inputs required 203 to make a unit of the output should at least be made equal to the amount of excise that v/ould otherwise be due on the unit of output* Secondly, the system whereby tax official visits excise factories and makes records of production daily should be extended to all excise factories rather than limited to just a few* Thirdly, the staffing of the excise section of the Department of Customs and Excise should be so adjusted that having regard to the suggested method of control, economic efficiency is at least achieved in excise control* Given the attributable working capacity of a properly equipped tax offi­ cial, such economic efficiency m i l l be achieved when the mar­ ginal excise revenue collected is at least equal to the margi­ nal cost of control. Fourthly, to further check dishonest practices on the part of tax officials, a system of regular inter-factory trans­ fers should be substituted for the present practice of retain­ ing a permanently stationed field staff with a factory for a very long time. In addition, the excise laws should be amended to provide stringent punishments for dishonest practices by any tax official (as was provided for in the 19^1 Excise Ordi- nanc e). Fifthly, all manufacturers of excisable commodities (excep't those specifically exempted from payment of excise duty) should 204 be required to submit periodically, for purposes of tax audit, appropriately drawn up and properly audited statements of their accounts for the period. Sixthly, the present predominant practice of basing excise levies on manufacturer's ex-factory prices should be changed in preference for retail price basis of levy. It is realised that retail sales tax would be veerr;y difficult to administer in Nigeria at the moment because W h e market structure for most of the locally manufactured commodities. Nevertheless, an excise tax based on retail price but collec- ted from the manufacturers would ber m uc"h more feasible. In particular, basing excise lev•iies on retail price would allow for automatic adjustment of excise revenue to changes in inflationary pressure-^iChus excise revenue rises as prices are rising and falls as prices are falling. This would make it a much more effective instrument of economic 20$ A=P=P_E=N_D=X=X QUESTIONAIRB SEN? TO MANUFACTURERS OF EXCISABLE GOODS E X C I S E D U T Y I N N I G E R I A 1. Name of Company:........ ............................. (You may omit this if you feel like 2. N(aam) e(s.). .o.f. .P.r.o.d.u.c.t.(.s.).:.-............. /«T (b) ........... .................... '(c) ................................ (e) ................................ (In what follows each of these piquets will be referred to as (a), (b), (c), (d), and (e) as the case may be) w 3. Use of Product(s) (Please tick as each falls under any of the categories) i. For consumption (a) (b) (c) (d) (e) ii. Input for producing other goods (a) (b) (c) (d) (e) iii. Capital goods (a) (b) (c) &d) (e) (If (i»^, for what. product(s) is (are) it (they) 206 207 5. Production (A) Please give the following information about your commo­ dity inputs:- Average amountF Average amount ’t Rate of import Average value Name of Input' imported yearly obtained loca­ duty or Excise used up yearly lly yearly .....duty Quantity 'Value Quantity^ Value ... Quantity •Value i# -.. ^ ^ .... . ii. iii. > ' iv. t 1 V . (*If obtained duty-free please pu4t a dash ( - ) ) (Note:Extra tables are sent for companies producing more than one product) (B) How much does it cost to produce 1 unit* of your product excluding Excise duty but including profits? (a) b) • ( c ) . (d) (e). *Please def'iinne w’f.r..a..'.t.. ...y...o...u...r... ... u. nit of measure is, e.g., Bale of 100 yards, Barrel of 1 0 ® gal!Ions, Box of 100 lb weight, etc................... 208 6. Distribution (A) Please tick right ( ) where applicable: Do you sell:- i. Direct to retailers (a) (b) (c) (d) (e) ii. Exclusively to wholesalers (a) (b) (c) (d) (e) iii. To both retailers and wholesalers (a) (b) (c) (d) (e) (B) Isfe lly?ou sell direct to retailers, Jfe.t what price do you (a)............... (b)...............(c).............. (d)............... (e).............. (C) If you sell to wholesalers (whether exclusively or not) at what price do you sell? ......A...... .(b)............... (c).............. (D) At wha^^jprice do the wholesalers sell to retailers? ( a \ .............. (b)...............(c).............. jS * .....................(e)............... 209 7o Turnover (A) How has Excise duty affected your turnover•?9 i. Aided your sales: very much slightly not at all ii. Reduced your sale very much slightly not at all 210 7 (B) Please supply information about your total monthly sales for the period stated below:- ’•'Month 1 1965 1966 ' 1967 ’...........1 9 5 8 __________ Jan. Feb. > 3 Mar. April May June July ....... ^ Aug. Sept. M .... Oct. .......- • A Nov. S Dec ♦ 1 *, < & (*Extra tabl es ar e sent for use of companies producing more than one excisable product) 8. CemMCfTlBficnts Please comment freely in the space provided below on the Nigerian Excise Law and its operation including any reforms you would like to see effected in the law and how it is being administered. 211 BIBLIOGRAPHY BOOKS, ARTICLES AND PAPERS Adedeji, Adebayo; Nigerian Federal Finance, (London: Hutchinson Educational Ltd., 1969) Asiodu, P.C.; "Industrial Development", An unpublisned paper presented to the Conference oh National Reconstruction and Development in Nigeria, March - 29« 19^9. Ayida, A.A.; "Development Objectives", An unpublished paper presented to the Conference on National Reconstruction and Development in~Nigeria, March 2^ - 29 , 19^9• Brownlee, Oswald and George L. Perry j^^Ef fee ts of 1965 Excise Tax Reductions on Prices’1, Rational Tax Journal, Vol.XX, No. 3 1965, PP.235 Chelliah, Raja J.; Fiscal J in underdeveloped countries with special reference ptooiiar.minindia., (London: George Alien and Unwin Ltd., i960) Dina, I. 0.; "Fiscal Measures", An unpublished paper presen­ ted to the Conference on National Reconstruction and Development in Nigeria, March 2.k - 29. 19^9• Dosser, Douglas; "Indirect Taxation and Economic Develop­ ment", Government Finance and Economic Development, (Papers and proceedings of the third study conference on problems of economic development organised by the Organisation for Economic co-operation and development, 19^V p p . 127 - 139. 212 Due, J. F.; Government Finance, 3rd. Edition, (Illinois: Richard Irwin, 1963) ---- ; Taxation and Economic Development, (Massachussets M.I.T. Press, 1963) ' ‘ ---- ; ’’Requirements of a tax structure in a Dei ilop- ment Economy”, Published in Bird and Oldman; Readings on Taxation in developing Countries, (Baltimore: John Hopkins Press, 1967), pp. 33 - ’+0. Goode, Richard; ’’Taxation of savings and consumption in underdeveloped countries”, National Tax Journal, Vol. XIV, No. 4, Dec. 1961, pp.307 -311. Guerin, Joseph; "Excise Taxation and quality of production”, Public Finance, Vol. XV, No. 1, I960, pp. 21 - 29. Henderson, J. M. and Quandt, R. E.; Microeconomic theory, a mathematical approach, (New York: McGraw - Hill Book Company, 1956• International Bank for Reconstruction and Development; The Economic Development of Nigeria. (Baltimore; The John Hopkins Press, 1965) Marshall, Alfred; Principles of Economics, 8th, Edition, (London: Macmillan and Company, 1961) McLure, Charles; "Commodity Tax incidence in open economies” National Tax Journal,' Vol. XVII, No. 2, 1964, pp.187 - 204. Musgrave, R. A.; Theory of Public Finance, International students' edition, (New York: McGraw - Hill Book Company, 1959) Okigbo, P. C. N.; Nigerian Public Finance, (London: Longmans, Green and Co. Ltd., 1965) 215 Phillips, A. 0.; "Nigerian Industrial tax incentives: Import Duties Relief and the Approved User Scheme", The Nigerian Journal of Economic and Social Studies, Vol. 9 No. 3, November, 1967* pp® 315 0 327® Prest, A. R.; Public Finance, (London: Weidenfeld and Nicholson^ i960). J o h n s o n , H a r r y ; " T a x P y r a m i d i n g a n d t h e M a n u f a c E x c i s e T a x R e d u c t i o n o f 1 9 5 ^ " , N a t i o n a l Ta: V o l . X V I I , N o . 3, S e p t e m b e r , 196^ ----- ; "Excise Tax reductions: A stimulant to Economic Growth", National Tax Journal, Vol. XVIII, No.w, 1965, pp.202 - 208o R o l p h , E a r l R . ; "A p r o p o s e d r e v i s i excise tax theory", J o u r n a l o f P o l i t i c a l E c o n o m y LX, April, 1952, p p . 102 - 1 1 7 ® Surrey, S. S.; "Tax administration in Underdeveloped coun­ tries", Report of the meeting of International Institute of Public Finance, Brazil, 195^1 Reprinted in Bird and Oldman; .Readings on Taxation in developing countries, (Baltimore: John Hopkins Press, 1967) P P ® ^ 9 7 - 527®^ Wellemsen, Michael A.; "The Effect upon the rate of private savings of a change from a personal Income tax to a Personal Expenditure Tax", National Tax Journal, Vol. XVI, No.l, March I96I,' pp. 98 - 103. Woodward, F. 0. and Harvey G. Siegelman; "Effects of the 1965 Federal Excise Tax Reductions Upon the Prices of Automobile Replacement Parts - A case study in Tax Shifting and pyramiding", National Tax Journal, «fol.XX. No.3 1967, P P ® 250 - 257® 22M- OFFICIAL PUBLICATIONS: Board oi Customs and Excise; Annual Reports 1959/60 - 1961/62. Budget speeches presented to the Federal Parliament in 1963, 1964, and 1965. Central Bank of Nigeria Annual Reports 1962 - 1967* Accountant General's Reports, 1952/53 - 1966/67. Federal Official Gazettes (and Supplements), 1933 - 1969. Statement on Industrial Policy, Sessional Paper, No.6 of 1964, (Lagos: Federal Ministry of Information, Printing Division). Nigeria Handbook of Commerce and Industries,, fifth edition, 1962, (Lagos, Federal Milnistry of Information). Federal Office of Statistics ; Anr mal Abstract of Statistics, 1965 and 1966. (Lagos/ F.“o.S.) --- ----; Economic Indicators, Vol.4, No.12. December 1968, (Lagos: F.O.S.) Ministry of Industries; Industrial Directory, 1967, (Lagos: National Press Ltd.). Federal Ministry of Economic Development; Federation of Nigeria National Development Plan, 1962 - 1968,(Apapa: Nigerian National Press Ltd.).