Nigeria: Disincentives of Rise in Import Duty

12 February 2024

It is commonplace to observe that Nigerians are facing a grim reality of rising costs of food and other essential commodities amid poor purchasing power and fast dwindling economy.

This contradiction that seem to have defied many a policy option has left the federal government in a quandary on how best to ease the pain the citizens feel.

As this quagmire persists, protests are beginning to erupt in some states of the country. The people are beginning to rise in anger occasioned by frustration.

It is important to point out that this challenge confronting the nation pre-dates the administration of President Bola Tinubu. However, it seems to have been compounded by the hasty removal of fuel subsidy which hiked the prices of petroleum products and subsequently other items as petrol is the hub around which other variables revolve.

The floating of the nation's currency, the Naira, and the resultant free fall in its value compounded the situation and is threatening to undermine the 'Renewed Hope' agenda of the government that came into office with the swagger of a performer.

It is sad to note that with hardship so prevalent, the government and its agencies are inclined to inflict even more pain on the people. How else can one explain the recent decision by the Central Bank of Nigeria (CBN) to adjust the Customs exchange rate twice in 24 hours.

Forex Crisis: Importers Dump Nigerian Ports For Cotonou, Togo

The media recently reported that the CBN had readjusted the exchange rate on the Customs platform from N1, 356.883 to N1, 413.62/$1, making it the second adjustment within 24 hours. With this adjustment, import duty is expected to increase by 48.49 per cent.

Experts were also reported to have warned that this policy thrust might impose more economic hardship on distraught Nigerians striving to make ends meet. Already, with this increment, the prices of goods imported into the country are likely to increase by over 47 per cent.

We recall that the CBN had adjusted the value of the national currency severally in less than six months and these adjustments have continued to impact negatively on the economy both at the micro and macro levels.

It is not difficult to imagine that a devaluation of exchange rate means Nigerian importers will pay more to clear their goods at the port as import duty is benchmarked against the dollar. And with the recent increase, import duty on goods has now tripled within the seven months of the Bola Ahmed Tinubu government.

It may be that these increases in import duty across board are part of the quest for internal revenue generation. It is also admissible that the government has numerous commitments that necessitate the pressure to rake in revenue from diverse sources. However, and in spite of these seemingly genuine reasons, we are of the opinion that ignoring the severe adverse impacts these measures have on the ordinary Nigerians could create the impression that the government is insensitive to the plight of the people.

The National Council of Managing Directors of Licensed Customs Agents (NCMDLCA),in a statement argued that. "the government through her policy is pushing more people into poverty. Nobody should blame Customs; it is the Government that should be blamed. With the rise in the exchange rate, people will not import because the way you look at it, how do you get foreign exchange to import?"

"Many people have lost their jobs, traders are closing shops. The situation is pathetic because we don't have what it takes to sustain this suffering. Government should intervene before it results in a crisis," it added

No doubt after the naira devaluation by the government, the purchasing power of Nigerians has largely been diminished pushing more people into poverty threshold .

A court in Nigeria has ordered the government to fix the prices of food items in the market including petrol and many others. This might be good on the face value but difficult to implement because the federal government cannot fix the price of what it does not control.

We believe the government must force a downward review of the cost of doing business and reduce the customs duty payable on many imported goods. We agree that customs duty and other duties are used to generate revenues but only when it is used to protect the areas and sectors of the economy where the country has competitive advantage. It is possible to increase duty but not overall on everything that is imported into Nigeria especially because the country is an import-dependent economy.

While some would want to argue that a reduction in duty might discourage local manufacturing, the question arises as to why manufacturers in Nigeria are not competitive compared with manufacturers in, say, China? It is on record that even after sea freight and import duties are added to their products the foreign products are still more affordable than locally manufactured ones. The reason is not far to seek. Manufacturers in that country get some form of subsidy part of which is efficient public utilities like energy and other infrastructure.

Therefore, even with the import duty increase, local products cannot compete with foreign goods. This is thought provoking and should send the message to the government that they should make the Nigerian market more competitive.

Nations don't develop by taxations alone but by productivity. What is holding the government down is their lack of creativity in revenue generation. The government does not have a revenue problem, they know what to do to raise revenue, what we have is over bloated expenditure that is creating problems.

We are of the view that the government should fix the exchange rate and make it more stable so that businessmen can plan ahead as they depend on the stability.

AllAfrica publishes around 500 reports a day from more than 100 news organizations and over 500 other institutions and individuals, representing a diversity of positions on every topic. We publish news and views ranging from vigorous opponents of governments to government publications and spokespersons. Publishers named above each report are responsible for their own content, which AllAfrica does not have the legal right to edit or correct.

Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica. To address comments or complaints, please Contact us.