Rise in import tariff takes toll on businesses

 Rise in import tariff takes toll on businesses

 

For most businesses dependent on importation of some kind, increase in import tariffs remains a sore point as well as disincentive to business, reports Ibrahim Apekhade Yusuf

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To say the rise in import tariffs is taking a heavy toll on businesses is certainly stating the obvious. Speaking with a cross section of stakeholders including manufacturers, importers as well as suppliers of luxury goods and essential commodities, they lamented what they described as the huge cost of import which is literally ‘slicing’ their capital and completely eroding their gains.

Cross of the matter

The rise in import tariffs in recent times is beginning to take a toll on the cost and prices of certain goods and services according to the Nigeria Bureau of Statistics (NBS).

A tariff is a specific tax levied on an imported good at the border. Tariffs have historically been a tool for governments to collect revenues, but they are also a way to protect domestic industry and production.

According to the report gleamed from its website, the NBS, noted that imports in Nigeria decreased to N1759720.29 in December from N2397223.91 in November of 2020, all thanks to a combination of factors, chief among which is rise in tariffs.

Under Nigerian law, the tax is charged at currently 7.5% of the value of the taxable goods and services. VAT = 7.5%.

At the moment, import duty varies from 5% to 60%, averaging 12% but all imports are also subject to a 7% port surcharge and a 5% value-added tax (VAT).

In the view of the Manufacturers Association of Nigeria, rising inflation has adversely affected the profitability of producers and is a major contributor to the low export penetration of made-in-Nigeria goods in the international market. “There is an urgent need for government to intentionally ensure price stability before the situation becomes deplorable,” the manufacturing body said in a statement recently.

Though the Federal Government had late last year proposed to slash import duties of tractors, transport vehicles, and others to further cushion current socio-economic conditions in the country, this has not had any positive effect on the operating environment as importers say they still pay humongous charges. It is however instructive to note that slash on import duties in 2020 Finance Bill not yet in force.

Global view of components of Nigeria’s imports

According to available information sourced on the website of in Trading Economics, a curating site for business data across sectors, Nigeria imports mainly industrial supplies (27% of total in 2014), capital goods (23%), food and beverage (17%), fuel and lubricants (14%), transport equipment and parts (12%) and consumer goods (7%). 43% of total imports come from Asia; 34% from Europe; 15% from America and 7% from Africa.

Further checks by The Nation revealed that the average cost of clearing a 20ft container to Nigeria is $2500 which translates to duties and taxes.

Other related cost impeding businesses

Lamentably, the NBS Transport Watch Report for 2020 showed a significant increase in transport fare across the country.

According to the report, Nigerians in 2020 paid over 120% more for rides on motorcycles popularly known as Okada.

The average rate for intra city bus journey also increased by 74% year on year, while intercity and airfare also increased by 36% and 18% respectively with an average Okada ride fare increasing from N125.5 in 2019 to N276.28 in 2020.

It would be recalled that the federal government announced the withdrawal of subsidy on PMS, which has led to an increase in the pump price of petroleum products.

Also, the COVID-19 compliance guidelines of reductions in the number of passengers on a bus also led to some increase in rates of transportation, including air transport.

N22.3 billion tax credit to Dangote

However, while other businesses are groaning under the weight of heavy taxes in form of tariffs, some are enjoying some bit of reliefs in form of tax credit.

In Nigeria, certain incentives are available to companies located in rural areas. The incentives take the form of tax reductions at graduated rates for enterprises located at least 20 kilometres from available electricity, water, and tarred roads.

It may be recalled that the Federal Inland Revenue Service (FIRS) has announced the issuance of tax credit certificates valued at N22.321 billion to Dangote Cement Plc.

The issuance of tax credit certificates followed the signing of Executive Order 07 of 2019 by President Muhammadu Buhari, which is on road infrastructure tax credit.

The tax credit certificates were for the construction of Apapa-Oworonshoki-Ojota road in Lagos and the Lokoja-Obajana-Kabba road that goes through Kogi and Kwara States.

This disclosure was made by the Executive Chairman of FIRS, Muhammad Nami, who was represented by the Coordinating Director, Tax Operations Group, FIRS, Femi Oluwaniyi, at the certificates presentation event to Dangote Cement.

The tax credit certificates for the Apapa-Oworoshoki-Ojota expressway is valued at N21.6 billion while that of the Lokoja-Obajana-Kabba expressway is valued at N721 million. Dangote Cement is receiving the second tax credit certificate from FIRS for the Lokoja-Obajana-Kabba road project.

This is the second time that FIRS will be issuing a tax credit certificate to Dangote Cement for the Lokoja-Obajana-Kabba road because, in 2019, a N9.5 billion tax credit certificate was issued to Dangote Cement for the same expressway.

Making justification for the tax waivers to Dangote, the FIRS helmsman said, “Government came to that reasoning that if we could encourage local investors to do the needful and of course under an agreement with some due monitoring and approvals, then some of the monies they would have accrued back to government as taxes, they would have paid. It will be in the interest of the government that other investors, business entrepreneurs, companies take advantage of this key initiative such that Nigeria can develop faster than the government would have done alone.”

Timeline of import tariffs increase

In 2013, the Goodluck Jonathan administration introduced a policy, known as the Nigerian Automotive Industry Development Plan (NAIDP) to encourage local manufacturing of motor vehicles, thereby boosting the economy.

The policy imposed 35% import duty and another 35% import levy on imported cars. The NCS commenced implementation of the new tariff scheme.

It is noteworthy that the import levy only applies to new cars. Used cars, better known as tokunbo cars, do not attract a levy.

Although the law became effective on January 1, 2021, the lowered levy has not been implemented.

Hameed Ali, Comptroller-General of the Nigeria Customs Service (NCS), said the service has received directive for implementation from the finance ministry.

“The act has been transmitted to us. We received the minister’s mandate this week, to start working on it, although we have to develop certain regulations and measures on how we intend to implement the law,” he said.

Controversy over import tariff waiver

In December 2020, Section 38(c) of the Finance Act 2020 provided a reduction in import “levy on motor vehicles for the transport of persons [cars] (HS Headings 8703) from 30% to 5%.” The section is an amendment of the customs and excise tariff, etc. (consolidation) act.

However, contrary to the content of the signed finance bill, Zainab Ahmed, minister of finance, budget and national planning in an interview, said the import levy of cars was reduced from 35% to 5%.

“For cars, the import duty is still 35 percent, what has been reduced is the levy from 35percent to 5percent, so there is still an import duty and levy of 40 percent on cars, and this is still the highest within the region,” she had said.