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CPP E’s  View On 2023 Fiscal Policy Measure

 

Some tax and import duty provisions in the 2023 Fiscal Policy Measures of the federal government would significantly hurt the economy and worsen the de-industrialization worries in the Nigerian economy. The construction and transportation sectors are also vulnerable to fiscal policy-induced downside risks.

Some of the measures could exacerbate inflationary pressures which are detrimental to economic growth and manufacturing, construction and transportation sectors.  It is double whammy for economic players to contend with a regime of high import duty, prohibitive tax rates amid a depreciating currency.

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.  Specific reviews of the new fiscal policies are as follows:

 Excise duty on Beverages, Drinks, Wine

The fiscal policy measures imposed the following rates:

It should be noted that Ad valorem tax is based on the value of the product, which makes the impact even more injurious to industrialists.

Sustaining current investments in these sectors would be a herculean task. These policy measures failed to reckon with the multifarious challenges which industry operators are currently grappling with, some of which include the following.

Implications for the sector and the economy

Drop in sales for investors in the sector

40% Import duty on vehicle

It is difficult to justify this high import duty on vehicles for the following reasons:

It is therefore insensitive of policy makers to impose a whooping 40% import duty on vehicles in an economy where there is no mass transit system and where vehicle ownership has become a necessity, especially for the middle class.

There is an additional 2% and 4% green tax, depending on the engine capacity of the vehicle. This translates to import duty of 42% or 44% depending on the engine capacity of the vehicle.

Implication on the economy and the citizens

High transportation cost as vehicles costs increases.

Import duty of 45 percent on iron and steel Products

The country is currently contending with high cost of construction of both public and private properties.  Infrastructure costs have also become very exorbitant. Housing deficit is still very high.  It is therefore difficult to justify this high import duty on a major input of construction industry.  Some of the implications of the high tariff on iron and steel include the following:

Tax on domestic wine producers

The local wine industry is already under tremendous from imported wines, which are largely smuggled. With a 30% Ad Valorem tax and a specific tax of N75/litre, most wine industries operating in the country may have to shut down.  It is ironic that rather than support local wine producers to be more competitive and create more jobs, the government has opted to impose even higher taxes on them.

The immediate risk is that the domestic wine market would be taken over by imported, and mostly smuggled wine.  Ultimately, the Nigerian economy, domestic investors in the sector and the employees of these firms would be the victims of this policy.  The government would also suffer revenue loses because smugglers do not pay tax as they operate in the underground economy.

The story of producers of spirits and alcoholic beverages is not different from that of the domestic wine producers.

 Tobacco industry  

Tax on tobacco industry was reviewed. New tax is 30% Ad Valorem; N8.20k per stick. There are two main issues with the tobacco sub sector which pose a policy dilemma. There is the morality of tobacco production, and there is the economics of it.  There is consensus that smoking is dangerous to health.  In recognition of this, companies producing it are already mandated to inscribe this on their product packages. Advertisement of tobacco products is already outlawed in Nigeria.  And smoking in public places is prohibited by law. There are many other stringent restrictions, including a subtle stigmatization of smokers.  But strangely, all of these have failed to deter smokers, not just in Nigeria, but across the world. It is an addiction issue.  It is therefore in order to continue to take steps to discourage smoking.

However, we should avoid extreme measures which may put the industry at the risk of extermination for the following reasons:

Meanwhile, we need to reiterate that this position is not anyway an endorsement of cigarette smoking; it is a risk management proposition while the campaign against smoking is sustained.

 

 

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