Professional firm, PwC, has urged the federal government to halt plans for further increase in taxes as businesses and households still grapple with the effects of its different market reforms.
PwC, in its latest economic outlook, “Navigating Economic Reforms”, said adding more taxes may lead to a decline in reinvestment and exit of corporate firms from the country.
“Any further increase in taxes will compound the decline in re-investments and exacerbate the possible exit of corporates from industry,” it said.
The government since the assumption of office has introduced a series of taxes with the cybersecurity levy being the latest plan.
However, after a lot of public outcry, President Tinubu through the Central Bank of Nigeria suspended the levy mandating banks and other financial institutions to charge 0.5 percent on every transaction.
Highlighting the impact of the government’s economic reforms, PwC said the naira devaluation and rising inflation have seen companies’ revenues decrease while the cost of doing business surges.
The tax and advisory firm stated that with high inflation, consumers’ purchasing power will reduce, leading to low sales for businesses, which consequently poses a negative impact on business revenue.
“Higher production costs, import costs, and raw materials costs from the inflationary and exchange rate pressures are passed on to businesses. Naira depreciation is expected to drive up the cost of imported raw materials,” PwC said.
“High interest rates may lead to higher borrowing costs for businesses, making it more expensive to fund operations and investments,” it added.
The London-based firm also revealed that President Bola Tinubu’s policies are piling pressure on household incomes, adding that it may result in low standards of living and increased poverty levels.
According to the report, the pressure on families, fuelled by inflationary trends, has seen their disposable incomes shrink, savings drop and investments decline.
“Inflation and exchange rate pressures have reduced the real value of household disposable income and consumption expenditure. Household savings may decline as individuals prioritise consumption and debt repayment over saving.
“Investments may decline due to reallocation of resources to consumption. The decline may be due to high inflation and rising cost of borrowing,” PwC said.
In the space of one year upon the reforms, the average petrol price surged by 211 per cent on the back of the fuel subsidy removal, the country’s monetary policy rate increased by 775 basis points but it is yet to tame inflation.
Even as the central bank continues to introduce inflationary targeted policies, Nigeria’s inflation rose from 22.4 per cent last May to 33.69 per cent in May 2024, and the naira depreciated by 67.8 per cent following FX market liberalisation.
“The changes in the key reform indicators imply that the economy may face slower growth, reduced consumer purchasing power, and increased cost of living, necessitating robust policy interventions to stabilise the economy,” PwC said.
To help businesses easily get off the economic shocks, the tax advisory firm advised the government to implement intervention funding schemes to support businesses with low-interest loan programs or credit guarantees.
It also urged the government to create social safety net programs such as unemployment benefits and workforce development programs to absorb the job losses from business exits.
“Government may reconsider any planned increase in selected taxes to alleviate the financial challenges and unlock liquidity of certain businesses being impacted by the economic pressure points,” the report stated.
