POINT OF CONSUMPTION PUZZLE: SENATE TAX CHANGES COULD SPARK PRICE WARS FOR THE BRITISH AMERICAN TOBACCO (BAT).

The passage of the tax reform bills by the Nigerian Senate on May 8th, 2025, could have several potential impacts on the operations and regulation of British American Tobacco (BAT) Nigeria. These impacts can be viewed through the lens of the specific provisions of the bills and the broader implications for the tobacco industry.

Potential Impacts on Operations:

• VAT on Point of Consumption: The adoption of VAT collection based on the point of consumption could affect BAT's pricing strategies and potentially its competitiveness across different states. States with higher consumption rates of tobacco products might see increased VAT revenue, which could indirectly influence pricing if BAT decides to absorb or pass on these costs to consumers.

• Revised VAT Distribution Formula: While the Federal Government's share of VAT is proposed to decrease, the increased share for states and local governments might not directly impact BAT's operational costs. However, it could lead to changes in how sub-national governments fund their activities, potentially including enforcement of regulations related to tobacco control.

• Nigeria Revenue Service (NRS) Establishment: The replacement of FIRS with NRS might lead to changes in tax administration processes. BAT Nigeria would need to adapt to the new agency's procedures for tax filing, remittances, and compliance. The proposed structure of the NRS, with Executive Directors representing geopolitical zones, could also imply a more decentralised approach to tax matters.

• Penalties for Tax Evasion: The amended penalty for failure to remit tax could increase the compliance burden on BAT Nigeria, emphasising the need for robust tax management systems to avoid potential imprisonment terms for responsible officers.

• Tax Exemptions: The income tax exemptions for low-income earners and small businesses are unlikely to directly impact BAT's corporate tax obligations but could influence the overall economic environment in which it operates. Increased disposable income for some segments of the population might indirectly affect consumer spending patterns, including tobacco products.

• VAT Credits on Capital Goods: If BAT Nigeria invests in capital goods and production inputs, the provision for VAT credits could reduce its operational costs and encourage expansion.

Potential Impacts on Regulation:

• Increased Revenue for Sub-national Governments: The larger share of VAT for states and local governments could provide them with more resources to enforce existing tobacco control regulations, such as those related to advertising bans, smoke-free public places, and sales to minors.

• Focus on Consumption: The point of the consumption VAT rule might incentivise state governments to pay closer attention to the sale and consumption of goods like tobacco within their jurisdictions, potentially leading to more stringent enforcement of regulations at the state level.

• Potential for State-Specific Tobacco Taxes: With increased fiscal autonomy due to a larger share of VAT, state governments might explore additional state-level taxes on tobacco products to further increase their revenue or to discourage consumption, although this is not directly mentioned in the bills passed at the federal level.

• Harmonisation of Tax Laws: The harmonisation process with the House of Representatives could also touch upon aspects that indirectly regulate the tobacco industry, although the primary focus of these bills seems to be on tax administration and revenue generation.

General Considerations for BAT Nigeria:

• Compliance Costs: Any new tax regime and administrative body (NRS) will likely entail compliance costs for BAT Nigeria in terms of adapting systems, training staff, and ensuring adherence to new regulations.

• Pricing and Market Strategy: Changes in VAT collection and potential future state-level taxes could necessitate a review of BAT's pricing strategies to remain competitive while maintaining profitability.

• Stakeholder Engagement: BAT Nigeria will need to engage with the NRS and potentially state tax authorities to understand the implications of the new tax laws and ensure compliance.

It's important to note that the final impact on BAT Nigeria will depend on the outcome of the harmonisation process with the House of Representatives and the eventual assent of the President, as well as any subsequent regulations or interpretations issued by the NRS and state governments. The broader regulatory landscape for tobacco in Nigeria, as outlined in the National Tobacco Control Act and its regulations, will continue to be a significant factor influencing BAT's operations.