How Customs’ new duty valuation threatens Nigeria’s food security
There is a looming threat to food sufficiency in Africa’s biggest economy, with agro-allied importers lamenting the impact of spot price duty evaluation on some essential commodities and raw materials for food processing.
The situation has continued to seriously threaten the efforts of Nigerian food, beverage, and tobacco processors to counter the shortfall in supply amid global supply disruptions buoyed by the Russian-Ukraine war and other global trends.
Manufacturers and importers are seeking the Federal Government’s intervention on import duty valuation of some critical raw materials as they believe that customs have been overstretching them by basing duty valuation on spot price in place of the transaction value of the commodity.
According to them, the Customs is using an arbitrary approach to arriving at the duty value, which is taking the current Spot prices as a benchmark. They complained that the service was not taking into consideration that the manufacturers may have secured goods at discounted or long business relationship value.
A source who would not want his name on print remarked: “Obviously, using the consumer price index to fix duty is not realistic. The source argued that it was not helpful for the Customs to use the Consumer Price Index (CPI) to compute value and charge duty, given the high cost of local production.
The source noted that the CPI has frequently drawn criticism that it has overstated inflation.
Business Day learnt that the impact of this practice is mostly felt by the food sector and considering how critical food is to the nation and its population, something needs to be done about this and quickly too.
This practice by customs, the source noted, was aiding inflation and threatening the stability of the country’s agro-allied industry.
According to them, internationally, Customs are mandated to base their duty valuation on the transactional value of the imported raw material as stated on the invoice presented by the importer.
The manufacturers maintained that the World Trade Organization supports harmonised duty valuation underpinned by facts and evidence. They added that the act by the Nigerian Customs would not stimulate economic growth as it would further increase the price of raw materials and components.
“When you buy a product, let’s say for N10 and import it into the country, the duty valuation is supposed to be based on the N10, but the Customs will now base the valuation on the Consumer Price Index in Nigeria,” another industry source who spoke on anonymity said.
They explained that basing duty on CPI drives up the cost of importation into the country, with its contributory infractions to the ailing economic hardship in the land, worsening inflation, and weakening consumer purchasing power.
They argued that this has had consequences on Nigerians since importers will introduce higher prices to recoup their investments. They also argued that the practice throws to the wind professionalism and expectations of the valuation officers whose responsibility is to calculate duties based on the value of the goods before them.
Speaking on the issue, Abiodun Olorundenro, manager, AquaShoot described CPI as a regressive way of valuing imports.
“I don’t think it is right for the customs to base their duty evaluation on CPI. What this means is that the imported commodity will cost more and the manufacturer will pass the extra cost to the consumers,” he insisted.
“This is one of the reasons why food prices are surging and we would see a further surge if the government fails to address the issue,” he said.
There is a global rally in commodity prices and most governments are supporting agro-allied businesses to survive. But the Nigerian government is only concerned about generating funds.
Fidelis Ayebae, chief executive and managing director at Fidson Healthcare PLC, said that the issue of basing import duty valuation on CPI is a pathetic situation.
He noted that the act is some of the reasons why the country is not attracting new investments. “This is why the country is not attracting new investment because no investor wants to invest in any country where there is no clear and consistent policy,” he said.
“It is only investors that want to trade that are attracted to Nigeria, where they come and trade and take out their money,” he further said.
“Take for instance wheat, a raw material for the milling industry which produces several staple foods that help meet the nutritional requirements of millions of households. Lower flour prices will directly imply lower bread prices and so on. This sort of practice should not even be happening in a country that is serious about food security and combating the threat of hunger for its citizenry,” he said.
According to him, an increment of the import duty on certain commodities the country doesn’t have a comparative advantage in its production has a spiral effect on the prices of consumables, noting that the products will witness a geometric increase in price if the Nigerian customs is allowed to continue with this practice.
In the last few weeks, prices of everyday meals like bread, spaghetti, noodles, pastries, and biscuits have increased significantly owing to the rally in the global wheat price induced by the Russian- Ukraine war. The price of a medium loaf of bread has risen from N450 to N750 in the last couple of weeks for some popular brands.
He added that contrary to some misguided views, it is never the intention of millers to jerk up prices of flour products, as most Nigerians are struggling to cope with the harsh realities of the dwindling fortunes of the Nigerian economy. He however noted that manufacturers, especially millers are contending with the high cost of diesel, skyrocketing global wheat price, international freight, customs’ arbitrary valuation duty charges, and the cassava levy, FX, and other challenges. Which he said impacts the cost of production.
Speaking on the implication, Frank Onyebu, chairman of the Manufacturer Association of Nigeria (MAN), Apapa branch, noted that the desire of Customs to increase their revenue is making them do all manner of things which in turn is making it difficult for manufacturers importing raw materials for production.
“This is the kind of thing that makes people run away from doing business in Nigeria,” he stressed.
“What the Customs need to do is put a mechanism in place to check importers’ fraudulent practices in trying to reduce tariffs and not peg duty to the current consumer price index in the country,” he advised.
According to him, if the situation continues it will further compound manufacturers’ woes, adding that the country’s products are unable to compete owing to the constant rise in the cost of production.
“Customs should not only be thinking about generating revenue but also about the businesses. If these businesses shut down there will be no revenue to collect,” he said.
He continued that pragmatic tariffs and lower import duties not only boost production and exports but help the economy replicate success stories.
According to him, promising tariff reduction would lead to greater market integration with the world economy, urging Nigeria to do something about increasing import tariffs for raw materials.
Obiora Madu, the CEO of Multimix Group, maintained that the Customs were very distrustful of importers.
“Nigeria Custom doesn’t trust anyone and they have every reason not to. The number of people involved in international trade that do fraudulent things is many, but that does not mean you will punish those doing the right thing,” he posited.
“It is not best practice to use inflation rate in duty valuation. There is too much indiscretion on the part of the Custom and if you decide to fight with them you will lose. We need to look for a way to address this,” he added.
In his reaction, Timi Bomodi, the national public relations officer of the Nigeria Customs Service, said the service considers the greater benefits of trade facilitation in conducting a duty valuation.
“What Customs is implementing is the WTO agreement on value which allows the use of the transaction value as presented in an invoice, however, where there is no agreement on that transaction value, we are supposed to use six other methods, ” he explained.
“Again part of what we do in valuation is to look at historical records of the commodity to check discrepancies. We do not just plug figures from the air, we look into the system and query it,” he said.
He said for commodities, Customs use the commodity indexes. “When an importer brings in a commodity and when the value is different from the prices at the international market, we can query it and point out to the importer that he or she is making a false declaration to the government, and they cannot fault it.”
“Any commodity that is internationally traded cannot have a price different from the going market value for that thing.”
With a revenue generation of N2.23trillion last year from a target of N1.67trillion, the Customs Service this year set a target of N4.1trillion. This is N1trillion more than the N3.1trillion target that the House of Representatives Committee on Customs and Excise had set for it in January soon after details of its revenue generation for last year were made public.
The new revenue target has been described as too high going by current economic realities and has impacted imports negatively.
This unrealistic revenue target has prompted the Nigerian Customs to devise new ways to realise the set target.
According to an industry source, the Customs has recently started enforcement of duty payment by spot rate as against contract rate across all import categories. This is pushing duty to extremely high levels.
Going back to the wheat value chain example cited earlier, since the disruption of the global supply chain by the covid pandemic and now the Russian-Ukraine war, governments of various countries have been showing support for imports of critical commodities their countries lack comparative advantage in production.
A quick review of actions taken by other countries whose food security situations were threatened reveals that in October 2000, the Government of the Philippines allowed millers to import high-quality maize at a lower import tariff of 35 percent instead of the normal duty of 65 percent. Heavy rains during the preceding months had damaged and in some cases prevented the drying of maize, and which led to the scarcity of the commodity.
Similarly, following the disruption caused by Russia’s invasion of Ukraine and shortage of animal mix, to boost domestic supplies of maize and wheat used for the mix, Thailand between March and June 2022, allowed maize imports above its monthly quota of 53 543 tons and waived the import surcharge of $4.70 per ton to bridge the supply gap.
South Korea’s farm ministry announced recently it would cut the import duty on wheat flour to check rising food prices, which have contributed to near decade-high inflation, and consider allowing the state-run Korea Agro-Fisheries Trade Corp to import wheat flour to boost domestic supply and stabilize food prices.
Nigeria can also learn from these countries to address the impact of import duty on imported items and most especially food and raw materials for food manufacturing to control the escalating food prices in the country.