Oil marketers and other stakeholders in the Nigerian oil and gas sector have called for the reversal of the newly implemented 7.5 percent tax on diesel, saying it will lead to a hike in the price of the product at the pump.
According to the operators, this looks like a punishment and is unfair to the citizens who are still adjusting to the reality of the removal of fuel subsidy.
This disclosure was made at BusinessDay’s Policy Intervention Series titled, “The National Dialogue on Transiting to a Deregulated, Sustainable Petroleum Products Market” on Thursday, June 22, 2023, in Lagos.
“Diesel has been deregulated for some time, so people are already going through a particular pain… But you have the same government that puts a tax on an alternative fuel,” said Olumide Adeosun, Chairman of Major Oil Marketers Association of Nigeria (MOMAN).
“We cannot tax 7.5 percent on diesel when you just removed the subsidy. It is the opposite of the palliative. We must make sure that whatever we do is sustainable.
“If you are not trying to strangle the golden goose, then I do not know what kind of message that is. The best we can do as operators is to pass this charge onto our consumers,” he added.
Speaking on the removal of subsidy, he said providing cash palliatives to cushion its effects is not sustainable. According to him, social contracts like building better road networks and creating a positive environment where businesses grow is the best form of intervention.
In addition, Olumide said that adding fair tax policies will be sought to consolidate taxes and reduce the burden on the industry. “There should be a good and secure handshake between the regulatory bodies and the tax authorities.”
The Federal Government on Monday, June 19, 2022 said that it had commenced the implementation of the payment of 7.5 percent Value Added Tax on diesel imports into the country by Nigerian customs.
As a result, the customs has informed oil marketers in the country of its intention to begin to demand new payment from them for diesel imports.
This implies that oil marketers will need to adjust their financial calculations and budgeting to accommodate the additional VAT cost, potentially affecting their profit margins and overall pricing of diesel in the market.
Taiwo Oyedele, Fiscal Policy Partner and Africa Tax Leader at PwC Nigeria said the 7.5 percent VAT on diesel is inappropriate and insensitive to do at this time.
To cushion the impact of the subsidy removal, he said that small and medium enterprises should be registered and provided with tax-free credits for a period of at least two years.
This registration process, according to him, will also generate a valuable database for future economic decision-making. “We have to look for ways to improve efficiency across the country.”
“I would expect that state and federal governments, because of the savings from this subsidy removal, should pay salary, pension, and contractor arrears.
“These are some interventions that will help stimulate growth in the economy and cushion the impacts of subsidy without you creating another form of subsidy that is unsustainable or to fund some level of corruption,” he added.