Article Summary
- Fiscal policy measures have come under scrutiny as some of the measures could have negative consequences for the economy
- Some stakeholders have urged the federal government to build capacity for local assemblage
- Fiscal policy measures must seek to ensure a good balance between objectives of revenue generation, boosting domestic production, enhancing the welfare of citizens, promoting economic growth, deepening economic inclusion
The 2023 Fiscal Policy measures recently introduced by the Nigerian government have come under scrutiny as some of the measures could have negative consequences for the economy.
One of the major areas of concern is the imposition of high tax and import duty provisions on some products.
One of the most concerning measures is the excise duty on beverage, drinks, and wines. The government has imposed different rates on different products, including non-alcoholic beverages, fruit juice, energy drink excise, beer and stout, wine production, and spirit and other alcoholic beverages.
Backstory
Ad valorem tax, which is based on the value of the product, is applied to these products, making it even more difficult for industrialists to sustain their investments in these sectors.
Unfortunately, these measures do not account for the multifarious challenges that industry operators are currently facing. Some of these challenges include declining consumer purchasing power, the devaluation of the naira, high energy costs, multiple taxes and levies, and a potential risk to jobs in the sector.
If these measures are implemented, they could lead to a drop in sales, negative effects on tax revenue, loss of direct and indirect jobs, and a decline in profitability and shareholder value.
Another problematic measure is the 40% import duty on vehicles. This high import duty is difficult to justify, especially given that Nigeria is highly dependent on road transportation.
Middle-class Nigerians are also finding it increasingly difficult to acquire vehicles, and locally assembled vehicles are beyond the reach of most Nigerians.
Additionally, over 90% of purchases are made out of pocket, and the interest rates on credit facilities are exorbitant. The depreciation of the naira has already exacerbated the cost of vehicle acquisition. If the 40% import duty is implemented, it could lead to high transportation costs, increased vehicle smuggling, and a higher number of rickety vehicles, especially commercial buses. The middle class will continue to struggle with affordability problems.
Instead of imposing more taxes on imported vehicles, some stakeholders have urged the federal government to build capacity for local assemblage.
What you should know
The chairman of CIG Motors Co Limited, Diana Chen, said that lack of stable electricity supply and insecurity were among the hurdles militating against effective operations of automobile assembly plants in Nigeria.
Chen further urged the Federal Government to develop policies that would encourage Nigerians to purchase brand-new vehicles instead of relying on imported fairly used ones.
She added that such a policy would boost investment in assembling plants that could in turn create jobs and wealth for the country.
The imposition of a 45% import duty on iron and steel products is also problematic. It is noteworthy that Nigeria is not a steel-producing country. Therefore, such high tariff on a major input of the construction industry could lead to an increase in the cost of housing construction and infrastructure projects.
This, in turn, could exacerbate the already high housing deficit and lead to a high risk of building collapse. The high tariff also creates a high risk of smuggling of iron and steel products and false declarations and collusion with government operatives at the ports.
Also, the tax on domestic wine producers could have detrimental effects on the local wine industry. The 30% ad valorem tax and specific tax of N75/litre on local wines could lead to many wineries shutting down, with dire implication on Nigeria’s 33% unemployment rate, according to the National Bureau of Statistics.
Imported wines, which are mostly smuggled, are already underpricing local wines. Rather than supporting local wine producers to be more competitive and create more jobs, the government has opted to impose even higher taxes on them. This could lead to a complete takeover of the domestic wine market by imported wines, mostly smuggled.
A social affairs analyst, Dr. Francis Agba, in an interview, said fiscal policy measures must seek to ensure a good balance between objectives of revenue generation, boosting domestic production, enhancing the welfare of citizens, promoting economic growth, deepening economic inclusion, facilitating job creation, and recognizing societal ethos, beliefs, and values.
- “The government should review these measures to ensure they do not have negative consequences on the economy and the citizens,” he said. Dr. Nosakhare Edo, an economist, says Nigeria will need all the right policies and the right people in positions to get the country back on the path to growth and development.
He said that will include creating jobs especially to get young people off the streets and engaged in rewarding economic activities. He however cautioned that antitrade policies would be inimical to the kind of growth Nigeria needs at the moment to get out of the woods.
Moody’s, a global rating agency, had predicted that Nigeria’ fiscal Pressures will worsen even after the new administration assumes power, except the new government embarks on radical and smart policies.