• Tuesday, June 25, 2024
businessday logo

BusinessDay

Nigeria to remove petrol subsidy before May 29 — Finance Minister

Fuel subsidy: Finance minister Ahmed links economic hardship as reason for extension

The Federal Government of Nigeria on Thursday said it will remove the controversial petrol subsidy before the end of President Muhammadu Buhari’s tenure on May 29, 2023.

Zainab Ahmed, minister of finance, budget and national planning, made this known during a courtesy visit to the headquarters of Voice of Nigeria in Abuja.

She attributed the delay in removal of the subsidy, as provided for in the Petroleum Industry Act (PIA) 2021, to the 2023 general election and the forthcoming national population census.

However, the federal government, on Wednesday, disclosed that no conclusion had been reached on how to mitigate the effect of the proposed fuel subsidy removal on the citizens.

Ahmed added that the subsidy removal was a difficult political and economic decision for the government to take.

Read also: Market drops further by 1.04% as bearish run persists on NGX

“Almost everyone had now agreed that the subsidy was not serving the people it was supposed to serve and its high cost was adding to the government’s deficit,” Ahmed said.

“The subsidy cost per litre of petrol ranged between N350 to N400, maintaining that Nigeria spends about N250 billion monthly on subsidy.”

The PIA signed into law on August 16, 2021 by Buhari provides for total deregulation of the downstream sector, which implies the removal of subsidy and enthronement of a free market regime for the sector.

But in January 2022, the federal government kicked that section of the PIA aside and postponed subsidy removal to the end of June 2023. The government cited the pains subsidy removal would bring on the poor and vulnerable masses.

Ahmed also said that the fuel subsidy is one of those political, economic decisions that you don’t want to have, but you’re stuck with it anyway.

“But we have come to the point when almost everybody has agreed that this is really not serving the people that it is supposed to serve and the cost of it has become so high that it’s adding to our deficit,” she said.

“And right now, we have approval within the Appropriation Act to exit the subsidy by June 2023. Or at least, I can say, the Appropriation Act made provision that only allows subsidies up to June 2023.”

According to Ahmed, we have to find ways in which we have to remove the subsidy and allow the market to flourish. When you remove the subsidy, then you have marketers that would be able to invest and bring this fuel product and sell it at market prices right now. And NNPC as the sole importer, is limited to an official price.

“So the subsidy per litre now ranges anything from N350, sometimes up to N400 per litre. The subsidy that government is carrying, just imagine what you can do with N250 billion per month, because that’s the average cost per month to the nation. That is even the cost to NNPC, there’s an implicit subsidy of forex,” she said.

“Such an amount could be invested in building more hospitals, schools, improving infrastructure and other critical sectors that would have visible positive impacts on Nigerians.”

Ahmed further said that the country can build more hospitals, more schools, provide more social services, improve infrastructure that will enhance the quality of life of the people, instead of just using it on a consumption item. You put gas in your car and in a couple of days it is gone and then you have to put it on again

“So we do hope that this time around, that the whole country will work with the government to get rid of this subsidy to save us from continuously expending limited resources on a consumption item,” she said.

Ahmed advised the next administration to increase VAT to 10 percent, saying this would stimulate the country’s economic growth.

She noted that the government had used the finance bills to block leakages, strengthen the Federal Inland Revenue Service (FIRS) and the Nigeria Customs Service, adding that the government has also done automation of the two institutions through the process.

Ahmed said the tax compliance has increased. As a result, we have also been able to adjust our VAT rate from five per cent to 7.5, even though our target was to 10 per cent. But you know how it is in Nigeria, we’re targeting 10 per cent by the second year, but we did so to increase revenue.

“VAT was one of the ways to increase revenue and we still have to increase VAT because at 7.5 per cent, Nigeria has the lowest VAT rate in the world, not in Africa, in the world. In Sub-Saharan Africa, the Africa average is 18 per cent, when you increase your VAT, your Gross Domestic Product (GDP) will grow,”she said.

“It will further grow because it will generate more revenue and, therefore, more economic activities. But that is something that the next administration has to look at to incrementally adjust and increase our VAT rate because it’s too low at the level in which it is.”