Tax increase, import duty provisions will hurt Nigeria's economy - CPPE

Some tax and import duty provisions in the 2023 fiscal policy measures of the federal government would significantly hurt the Nigerian economy, the Centre for the Promotion of Private Enterprise (CPPE) has said.

In a statement signed by Muda Yusuf, director of CPPE, the think tank said the construction and transportation sectors are also vulnerable to fiscal policy-induced downside risks.

Mr Yusuf noted that some of the measures could exacerbate inflationary pressures which are detrimental to economic growth and manufacturing, construction and transportation sectors.

“It is a double whammy for economic players to contend with a regime of high import duty, and prohibitive tax rates amid a depreciating currency,” he said.

He explained that fiscal policy measures must seek to ensure a good balance between objectives of revenue generation, boosting domestic production, enhancing the welfare of citizens, promoting economic growth, deepening economic inclusion, facilitating job creation and recognizing societal ethos, beliefs and values.

Commenting on the excise duty on beverages, drinks and wines, Mr Yusuf said it should be noted that the Ad valorem tax is based on the value of the product, which makes the impact even more injurious to industrialists.

He added that sustaining current investments in these sectors would be a herculean task.

“These policy measures failed to reckon with the multifarious challenges which industry operators are currently grappling with, some of which include the following.

“Weak and declining consumer purchasing power, Naira exchange rate depreciation which is taking a huge toll on the cost of production, High energy cost,” the statement said.

He added that multiple taxes and levies are already being imposed on the industry players.

“Risk to jobs in the sector and its extended value chain including millions of MSMEs in its distribution and marketing chain and Downside risk to manufacturing sector outlook in the Nigerian economy,” he said.

According to him, the implications for the sector and the economy include dop in sales for investors in the sector, a negative effect on tax revenue from the sector, and loss of direct and indirect jobs which could be in a couple of millions.

It is also expected that millions of farmers supplying local inputs such as grains to the sector may lose their livelihoods, risk of decline in profitability and shareholder value and elevated risk of smuggling of the products.

Import Duty

The CPPE boss said it is difficult to justify the 40 per cent import duty on vehicles.

He noted that Nigeria is about 90 per cent dependent on road transportation which underscores the importance of motor vehicles in the economy.

“There is an increasing affordability problem for citizens with regard to vehicle acquisition, especially by the middle class of Nigerian society.

“Costs of locally assembled vehicles are beyond the reach of most Nigerians, contrary to the assurance given by the government at the inception of the auto policy,” he said.

He further explained that there is limited access to credit for vehicle purchases by Nigerians.

“Over 90 per cent of purchases are done out of pocket, which is extremely challenging. And where the credit facilities exist, the interest rates are outrageous, between 25-30 per cent,” he added.

“The economy has experienced huge exchange rate depreciation which had already exacerbated vehicle acquisition cost in the first place.”

Mr Yusuf noted that it is therefore insensitive of policy makers to impose a whopping 40 per cent import duty on vehicles in an economy where there is no mass transit system and where vehicle ownership has become a necessity, especially for the middle class.

“There is an additional 2 per cent and 4 per cent green tax, depending on the engine capacity of the vehicle. This translates to import duty of 42 per cent or 44 per cent depending on the engine capacity of the vehicle,” he said.

On the 45 per cent iron and steel products import duty, the think tank said the country is currently contending with the high cost of construction of both public and private properties.

“Infrastructure costs have also become very exorbitant. The housing deficit is still very high. It is therefore difficult to justify this high import duty on a major input of the construction industry,” he said.

He added that some of the implications of the high tariff on iron and steel include the increase in the cost of housing construction, and infrastructure projects.

“With a 30 per cent Ad Valorem tax and a specific tax of N75/litre, most wine industries operating in the country may have to shut down. It is ironic that rather than support local wine producers to be more competitive and create more jobs, the government has opted to impose even higher taxes on them,” he said.

He noted that the immediate risk is that the domestic wine market would be taken over by imported and mostly smuggled wine.

“Ultimately, the Nigerian economy, domestic investors in the sector and the employees of these firms would be the victims of this policy.

“The government would also suffer revenue losses because smugglers do not pay tax as they operate in the underground economy.

“The story of producers of spirits and alcoholic beverages is not different from that of the domestic wine producers,” he said.