Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf has cautioned that some fiscal policies of government on tax and import duty provisions as contained in the 2023 fiscal policy measures would significantly hurt the Nigerian economy.
In a statement, Yusuf said the construction and transportation sectors were also vulnerable to fiscal policy-induced downside risks.
The Former Director General of the Lagos Chamber of Commerce & Industry (LCCI) stressed that some of the measures could exacerbate inflationary pressures which are detrimental to economic growth and manufacturing, construction, and transportation sectors.
According to him, it will be stressful for economic players to contend with a regime of high import duty, and prohibitive tax rates amid a depreciating currency.
He argued 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.
Speaking on the excise duty on beverages, drinks, and wines, he stated that the Ad valorem tax is based on the value of the product, which makes the impact even more injurious to industrialists.
The EX LCCI DG stated that sustaining current investments in these sectors would be a herculean task.
He lamented that the policy measures failed to reckon with the multifarious challenges which industry operators are currently grappling with, such as weak and declining consumer purchasing power and Naira exchange rate depreciation which is taking a huge toll on the cost of production, High energy cost among others. He regretted that multiple taxation and levies are already being imposed on the industry players.
According to him, the implications for the sector and the economy include a drop 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.
On the 40 percent import duty on vehicles, Yusuf said it is difficult to justify the 40 percent import duty on vehicles.
According to him, Nigeria is about 90 percent dependent on road transportation which underscores the importance of motor vehicles in the economy. Currently, there is an increasing affordability problem for citizens with regard to vehicle acquisition, especially by the middle-class in society. There is no gain in saying that the 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 added.
He also frowned at the fact that there is limited access to credit for vehicle purchases by Nigerians.
“Over 90 percent 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 percent. The economy has experienced huge exchange rate depreciation which had already exacerbated vehicle acquisition cost in the first place”, he added.
Yusuf noted that it is therefore insensitive of policymakers to impose a whopping 40 percent 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 percent and 4 percent green tax, depending on the engine capacity of the vehicle. This translates to import duty of 42 percent or 44 percent depending on the engine capacity of the vehicle,” he said.
Commenting on the 45 percent iron and steel products import duty, he said the country is currently contending with the high cost of construction of both public and private properties.
He said: “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. With a 30 percent Ad Valorem tax and a specific tax of N75 a 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.
According to him some of the implications of the high tariff on iron and steel include the increase in the cost of housing construction, and infrastructure projects. 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”
