Excise duty hike will work against Nigeria’s industrialisation bid – Yusuf warns

The Centre for Promotion of Private Enterprise has said that tax and import duty provisions in the 2023 fiscal policy measures of the Federal Government will significantly hurt the economy and worsen the de-industrialisation worries in Nigeria.

The Federal Government recently introduced a new set of taxes on imported vehicles, alcoholic beverages and single-use plastics which are to take effect from June 1, 2023.

Muda Yusuf, the director of CPPE, said some of the measures could exacerbate inflationary pressures which are detrimental to economic growth in the manufacturing, construction and transportation sectors.

For him, the taxes would present a double whammy for economic players to contend with in a regime of high import duty, prohibitive tax rates and a depreciating currency.

Beer and stout, including other alcoholic beverages not made from malted – whether fermented or not, would attract a 20 percent import duty

According to Yusuf, it is difficult to justify the 30 percent proposed import duty on vehicles because Nigeria depends about 90 percent on road transportation which underscore the importance of motor vehicles in the economy.

He also noted the increasing affordability problem for citizens with regard to vehicle acquisition, especially by the middle class of Nigerian society.

“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.

“There is limited access to credit for vehicle purchase 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.

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“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,” he said.

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.

Commenting on the 45 percent duty on iron and steel products, Yusuf noted that the country currently contends with the high cost of construction of both public and private properties as infrastructure costs have also become very exorbitant.

“Housing deficit is still very high; it is, therefore, difficult to justify this high import duty on a major input of the construction industry.

“Some of the implications of the high tariff on iron and steel include an increase in the cost of housing construction, an increase in the cost of infrastructure projects, and an increasing risk of building collapse because of the prohibitive cost of construction materials among others.

“Also, the local wine industry is already under tremendous pressure from imported wines, which are largely smuggled. With a 30 percent 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 jobs, the government has opted to impose even higher taxes on them. 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,” he said.

He stressed that fiscal policy measures must seek to ensure a good balance between objectives of revenue generation, boosting domestic production and promoting economic growth.

Recall that the Manufacturer Association of Nigeria (MAN) had also expressed worries over the new taxes, stating that the current situation is indicative of inconsistency in government policy, given that industries that are affected by excise tax administration already made three-year strategic plans.

According to Segun Ajayi-Kadir, the director-general of MAN, the move may create credibility issues for the country with existing and potential investors, impacting foreign direct investments (FDI) and the country’s ease of doing business index among other implications.

“It is, therefore, alarming and concerning that the implementation of the 2022 to 2024 approved excise roadmap, as contained in the 2022 Fiscal Policy has unfortunately not even been implemented for up to one year before the government decides to ‘shift the goal post,” he said.