The Centre for the Promotion of Private Enterprise, CPPE, says it stands with President Ahmed Bola Tinubu on the Executive Orders which the president recently signed.
The Executive Orders cover the following:
Suspension the Excise duty escalation contained in the 2023 Fiscal Policy Measures imposed by the previous administration.
Suspension of Green Tax on some categories of vehicles.
The deferment of the effective date of the Finance Act 2023 and some customs tariffs. This was to ensure compliance with the mandatory 90 days’ notice prescribed in the National Tax Policy as well ensure reasonable notice for customs tariff reviews.
Chief Executive Officer of CPPE, Muda Yusuf, in a mail he sent to Prime Business Africa on Sunday July 9, 2023 said:
“We commend this move to normalize policy implementation processes consistent with the national tax policy and best practice principles. The executive orders also demonstrate the sensitivity of the Tinubu administration to the predicament of the manufacturing sector amid overwhelming headwinds and hassles to real sector activities in the Nigerian economy. “
CPPE, while commenting on the Executive Orders, which incidentally focus on taxation and the Finance Act 2023, agreed that Nigeria’s “manufacturing sector is a troubled part of the economy,” noting that the sector’s growth slowed to 1.6% in the first quarter of 2023, from 2.8% in the fourth quarter of 2022 having contracted by 1.9% in the third quarter of 2022.
“It barely contributes 10% to the Gross Domestic Product [GDP] in the first quarter of 2023,” CPPE observed.
Major Challenges of Nigeria’s Manufacturing Sector
Nigeria’s manufacturing sector, according to the CPPE, is grappling with the following, among others:
Challenges of depreciation in the exchange rate which is impacting adversely on the cost of production, a situation which is severely inhibiting production and productivity in the sector.
Intense pressure on cost of production arising from numerous structural bottlenecks. This situation is creating sustainability challenges for investors in the sector, especially those in the SME segment. They have experienced significant spikes in the cost of raw materials, cost of fund, high import duty, elevated energy cost, prohibitive cost of transportation and high cost of logistics. A huge proportion of these costs cannot be passed on to the consumers because of high consumer resistance.
Energy costs remain high. Though the cost of diesel dropped slightly in the last one month, but still remains high at about N700 per litre. The cost of gas is also prohibitive just as in electricity tariffs remains exorbitant.
Additional Reliefs For Investors And Citizens – What CPPE is Saying
CPPE’s Yusuf noted that recent reforms, especially the fuel subsidy removal and the adoption of a market reflective exchange rate regime, have significant fiscal consolidation outcomes “very positive for the economy.”
“It would create ample fiscal space, reduce fiscal deficit, enhance social spending prospects to protect the vulnerable segments, and facilitate the stability of the macroeconomic environment. The good news is that all the three tiers of government would be beneficiaries of the increase in revenue – federal, states and local governments.”
Proposal On Additional Revenues
The CPPE proposes four dimensional channels of utilization of the resultant additional revenues
The first is to commit part of the revenues to fill the holes created by the recurring fiscal deficit. This will gradually reduce fiscal deficit, and by extension, the growing burden of debt.
The second channel is to increase the wages of public sector workers across all levels and in all tiers of government. This would mitigate current hardship inflicted by the fuel subsidy removal through an enhancement of their purchasing power.
The third channel is to provide reliefs to the populace by giving generous import duty concessions on agricultural sector inputs and machineries, intermediate products for manufacturers which are not available locally, generous fiscal incentives for food processing companies to reduce the cost of staple foods, and scrapping of Import duty on industrial machineries and equipment.
Import duty on 15-seater passenger buses and above should be slashed by 50%. This would make it possible for more corporate bodies, government agencies and commercial transport operators to invest more in the provision of mass transit buses for their staff and commuters. This would ease the burden of high transportation cost. Also Import duty on cars of 2000cc engine capacity and below should be similarly reduced by 50%. This would give relief to the middle class and improve the supply side of public transportation.
CPPE Opposes Tinubu’s Proposal To Collect VAT From The Informal Sector
Meanwhile, the Yusuf has advised the Tinubu administration against the decision of the FIRS to undertake VAT collection in the informal sector. It gave eight reasons for its position:
The economics of collection does not support the move. The cost of collection would be much more than the amount that could be collected.
Over 98% of the informal sector traders are microenterprises who do not fall within the threshold of entities that are liable for VAT payment.
The informal sector associations are highly fragmented. It would be impractical to develop a partnership framework with the market associations for the collection as contemplated by the FIRS.
Most informal sector operators have not recovered from the shocks of the fuel subsidy removal and the associated inflationary impact.
Most informal sector operators have no records which could be used for purposes of assessment. There is therefore a high risk of arbitrary assessment.
The literacy level of the operators in the sector is very low which would create communication issues.
The political cost to the government will be very high.
Most informal sectors are already paying all manner of levies to local governments, and several non-state actors. The government need not burden them with additional taxes.
READ ALSO Fuel Subsidy Removal: 26 Actions Tinubu Govt Must Take – CPPE
On the way forward, Yusuf said the FIRS should think of more creative ways of taxing the informal sector players in ways that will be more cost effective, less disruptive and with minimal political cost.
“More importantly, the FIRS should adopt the pareto principle of focusing on the few players and individuals that could give the highest revenue yield. This is a model appropriate for an economy with high level of inequality like ours,” the CPPE CEO said.
In a move aimed at mitigating economic hardship and creating a more business-friendly environment, President Bola Ahmed Tinubu has signed four Executive Orders that curbs arbitrary taxation policies in Nigeria.
The announcement was made by the Special Adviser to the President Dele Alake, during an interactive session with State House Correspondents last week.
Shedding light on the key provisions of these orders, Alake said the orders are in furtherance of President Tinubu’s commitment to creating a business-friendly environment.
The first Executive Order, known as the Finance Act (Effective Date Variation) Order, defers the implementation of changes in the Finance Act from May 23, 2023, to September 1, 2023.
MetroBusinessNews (MBN notes that the National Tax Policy (NTP) had undergone series of reviews, aimed at creating a business-friendly environment and simplifying taxation.
However, these reviews did not adhere to the 90-day notice period prescribed by the 2017 NTP, putting businesses in violation of the new tax regime even before the changes were gazetted.
These inconsistencies and uncertainties prompted President Tinubu’s deferral to ensure that taxpayers receive a 90-day notice period before any tax changes take effect, allowing for better preparation and compliance.
The second Executive Order, the Customs, Excise Tariff (Variation) Amendment Order, also shifts the start date of tax changes from March 27, 2023, to August 1, 2023.
This alteration provides businesses with additional time to adapt to any modifications in customs and excise duties, enabling them to make informed decisions and mitigate potential disruptions.
Recognizing the impact of excessive taxation on certain sectors, President Tinubu has suspended the five per cent Excise Tax on telecommunication services, the Excise Duties escalation on locally manufactured products, and the newly introduced Green Tax on single-use plastics.
The Excise Tax on telecommunication services was introduced as part of the 2022 Fiscal Policy Measures and Tariffs Amendments Order and is applicable to all telecommunications services provided in Nigeria, including postpaid and prepaid services.
However, this tax faced significant controversy, as industry players raised concerns about multiple taxes on their operations and the potential negative impact on the sector’s growth and affordability of services.
The Excise Duties escalation on locally manufactured products on the other hand was introduced as part of efforts to enhance revenue generation and promote local production.
It involved increasing excise duties on various goods manufactured within Nigeria, presenting challenges for businesses, as it affected production costs, competitiveness, and ultimately, their ability to thrive in the market.
The Green Tax, including the Single-Use Plastics (SUPs) tax, aimed to reduce plastic waste and promote environmental sustainability, by imposing an excise duty of 10 per cent on single-use plastics, including plastic containers, films, and bags.
The tax aimed to discourage the use of SUPs and encourage the adoption of more sustainable alternatives.
Nevertheless, concerns were raised regarding the impact on businesses and the need for a comprehensive approach that considers the country’s net zero plan without negatively affecting the economy.
Additionally, the President has ordered the suspension of the Import Tax Adjustment (IAT) levy on certain vehicles, which initially took effect on June 1, 2023. This decision aims to ease the financial burden on individuals and businesses involved in the importation of affected vehicles.
The IAT levy was introduced to adjust taxes on imported vehicles based on engine size and value, imposing a two per cent tax on vehicles with engine sizes ranging from 2 to 3.9 litres, and a four per cent tax on vehicles with engine sizes of 4 litres and above.
The levy also allows the federal government to charge N75 per litre of beer, stout or wine imported into Nigeria.
The IAT aimed to generate revenue and encourage local vehicle manufacturing, but imposed additional costs on importers and affected the affordability of these items.
Over the past month, Nigerians have expressed their concerns and frustrations following the abrupt removal of subsidies on fuel and foreign exchange by President Tinubu, after his swearing-in on May 29.
The sudden removal of subsidies led to increased fuel and commodity prices, as well as a weakened purchasing power, placing a significant burden on Nigerians.
However, by issuing these orders for the suspension of these taxes, the President aims to ameliorate the adverse impacts of tax adjustments on businesses and provide much-needed relief in these challenging times.
These measures also signify a deliberate effort to strike a balance between revenue generation and ensuring the sustainability and growth of businesses in Nigeria.
The signing of these Executive Orders has been hailed in some quarters as a significant step towards curbing arbitrary taxation policies, promoting stability, and providing much-needed relief to businesses and households.
It is expected that these measures would contribute to a more conducive business environment, alleviating the burden of taxation on citizens and fostering sustainable growth, in line with economic recovery efforts.