Not only has the move of the Federal Government to close the land border, coupled with its FX restriction on some products, resulted in a rise in commodities prices, it has also caused a surge in inflation rate at 11.61 percent as well as further shrink in consumer wallets which reduced trading activities in the economy. Potential revenue from taxes on imported goods also plunged.
The non-import foreign VAT for the third quarter of 2019 dropped by 34 percent to N63 billion from the N94 billion recorded in the second quarter of the year. This is also the lowest third-quarter remittance in five years.
This was seen in the sectoral VAT report released by the National Bureau of Statistics (NBS). The report also showed that general VAT remittance for the quarter under review dropped by 11 percent to N275 billion, which is also the lowest recorded in five years.
Trailing closely on the VAT remittance decline was the NCS import VAT which dropped by 6.27 percent to N61 billion and also the local non-import remittance which dropped minimally by 0.54 percent to N150 billion.
An economic research report released by Renaissance Capital (RenCap), an investment and securities firm, stated that the closure of Nigeria’s land borders could lead to a slowdown in Nigeria’s economic growth in 2020.
“We believe the pick-up in inflation, on the back of the border closures, will undermine confidence and demand in subsequent quarters,” the firm said. “This will also counter the positive impact of improving credit growth, resulting in a neutral impact on GDP growth.”
According to the Lagos Chamber of Commerce and Industry (LCCI), the border closure by the Federal Government which commenced in August had a ripple effect across the sub-Saharan Africa, especially local producers and traders who are forced to use alternative routes for their exports.
In addition to reducing trading activities, the border closure also contributed to the headline inflation which recorded the highest in 18 months. Due to the reduced trading activity, FG’s revenue also dropped which is evident from the tax remittance.
“This just indicates that the level of turnover in terms of volume has decreased principally caused by the border closure. The fees which should be remitted to the Federal Government have been diverted to ‘smuggling fees’ which is informal and cannot be remitted,” Omobola Adu, research analyst at GDL Asset Management, said. “In addition, the ban placed on some items has also withheld the potential revenue government should get from the VAT on imported goods.”
Harrison Oladipupo, a Lagos-based auditor and tax consultant with W.A Kareem and Co., said this is mainly a result of the border closure as well as the decline in trading activities in the economy.
“Should the closure extend, more declines will be recorded going forward,” Oladipupo said.
However, analysts believe that the border closure review coming up in the first quarter of 2019 and the new finance bill which votes for increased VAT to 7.5 percent from its initial 5 percent may reverse the decline in the medium term.