• Wednesday, April 24, 2024
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BusinessDay

Cost of clearing imported goods up 93% on weaker naira

Customs Onne Port command generates N115.26bn in H1

With the continued depreciation of the naira against the dollar, customs duties paid on imported goods have risen by about 93 percent since the federal government’s foreign exchange reform kicked in eight months ago.

The cost of clearing imported items is higher, putting pressure on already struggling businesses and making it more difficult for them to stay above troubled waters.

The increase in customs duty was caused by weaker naira, which has seen manufacturers and importers of finished products continue to spend more to bring goods into the country.

The naira, which crossed the N1,000 mark to a dollar at the official market in December 2023, has remained volatile and reached N1,900/$ in the parallel market and N1,506.352/$ in the official market as of Monday.

The Nigeria Customs Service has adopted the Central Bank of Nigeria’s official foreign exchange rate for clearing of imported goods at the port.

This has resulted in high import tariffs occasioned by the high exchange rate for calculating customs import duty at the port which has risen by 86.8 percent since FX reforms and 51.3 percent since January 2024.

What this means is that importers and manufacturers are now using more money to clear their goods at the port.

For instance, a 40-foot container of pharmaceuticals that was previously cleared for N7 million by this time last year when the exchange rate for customs duty was N422.30$ is now cleared for N25 million while a 20-foot container of pharmaceuticals is now cleared with N12 million from N5 million, said Tony Anakebe, a licensed customs agent.

He said this explains why medicines, which have zero duty and 20 percent levy, are very expensive today.

Anakebe said importers, who in response to the costly importation, have reduced their volume of imports, are now increasing prices to cover their costs.

Another importer named Akinto said on his X handle @Onyeka01 that a 40-foot container previously cleared in Onne Port with N7 million in August 2022 is now cleared for N18 million.

These costs add up to the prices of the finished products on the shelf. With Nigeria being an import-dependent nation, consumers are up for a further rise in prices amid low purchasing power and accelerating inflation.

Kingsley Igwe, national secretary of the National Association of Government Approved Freight Forwarders, said it is not right for the apex bank to allow the exchange rate for cargo clearing to fluctuate due to its economic impact on businesses.

According to him, other countries practice hedging or benchmarking of rates at a particular threshold such that if the dollar goes high, it will not affect businesses.

On why Customs adopted the fluctuating FX rate, Igwe blamed the annual revenue targets given to Customs by the government.

He said Customs is not a revenue-generating agency but a trade-facilitating and duty-collecting agency but with emphasis on revenue, Customs will devise means to make up for the shortfall.

Igwe said trade volume has decreased after COVID-19 and to realise over N5 trillion revenue target in 2024, the present Customs management aligned with the CBN to allow the exchange rate for paying import duties to fluctuate for the advantage of Customs.

Igwe said: “This means that despite the slow trade volume, Customs would keep declaring huge revenue for the detriment of businesses. CBN should hedge or benchmark the FX rate for duty payment because the fluctuating rate is affecting investor confidence.

“The predictability of the cost of clearing in Nigeria is retrogressive due to the fluctuating FX rate for duty payment, which is not good for Nigeria’s logistics performance index rating.”

Meanwhile, the CBN at the weekend approved the use of the exchange rate at the time of submitting Form M for calculating import duty.

Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise, said the decision to apply the FX rate on form M for calculating import duty is a laudable response because it would reduce the current uncertainty around imports.

He, however, said the apex bank’s intervention did not address the bigger and more troubling issue of the currently prohibitive cost of clearing goods at the ports which had risen by over 40 percent in the last two months.

“The high exchange rate for import duty assessment is fuelling the already high inflation, increasing production and operating costs for manufacturers and other businesses, worsening the cost-of-living crisis, and putting thousands of maritime sector jobs at risk,” he said.

Yusuf suggested the pegging of FX for paying Customs duty at N1,000 to the dollar to mitigate the current hardship.