- The Nigerian government’s 2023 fiscal policy measures are coming under scrutiny due to potential negative impacts on the economy.
- High import taxes and tariffs on products such as alcoholic beverages, steel and local wine production worry analysts and economists.
- These measures could lead to a drop in sales, negative effects on tax revenues, job losses, and decreased profitability and shareholder value.
The 2023 fiscal policy measures recently introduced by the Nigerian government have come under intense scrutiny as they are seen as potentially damaging to the economy.
One of the main areas of concern is the imposition of high taxes and import duties on the importation of some products such as alcoholic beverages, non-alcoholic wines, including locally produced wine, etc.
Why are these measures so problematic?
A social affairs analyst, Dr Francis Agba, told Nairametrics that it is important that fiscal policy measures seek to ensure a good balance between the objectives of generating income, boosting domestic production, improving the welfare of citizens, promoting economic growth, deepening economic inclusion, facilitating employment, the creation and recognition of ethics, beliefs and values in society.
- “The government should review these measures to ensure that they do not have negative consequences for the economy and citizens.” he said.
Also speaking with Nairametrics, economist Dr. Nosakhare Edo, he warned that anti-trade policies would run counter to the kind of growth Nigeria needs right now to come out of the woods.
Note that Moody’s, a global ratings agency, had predicted that Nigeria’s fiscal pressures will worsen even after the new administration takes power, except the new government embarks on radical and smart policies.
More on the adverse effects of Buhari’s recent fiscal policies
The imposition of a 45% import duty on iron and steel products is also problematic. It should be noted that Nigeria is not a steel producing country. Therefore, such a high tariff on an important 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 misrepresentation and collusion with government agents at ports.
In addition, the tax on domestic wine producers could have detrimental effects on the local wine industry. The 30% ad valorem tax and 75 naira per liter specific tax on local wines could cause many wineries to close, with dire consequences for Nigeria’s 33% unemployment rate, according to the National Bureau of Statistics.
Imported wines, which are mostly smuggled, are already undervaluing local wines. Instead of supporting local wine producers to be more competitive and create more jobs, the government has chosen to tax them even higher. This could lead to a complete takeover of the domestic wine market by imported wines, mostly smuggled.
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The ad valorem tax, which is based on the value of the product, is levied on these products, making it even more difficult for industrialists to maintain their investments in these sectors.
Unfortunately, these measures do not take into account the many challenges that operators in the industry are currently facing. Some of these challenges include declining consumer purchasing power, 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 revenues, direct and indirect job losses, and decreased profitability and shareholder value.
Another problematic measure is the 40% tax on vehicle imports. This high import tariff is difficult to justify, especially since Nigeria is highly dependent on road transport.
Middle-class Nigerians are also finding it increasingly difficult to afford vehicles, and locally assembled vehicles are out of reach for most Nigerians.
In addition, more than 90% of purchases are made out of pocket and the interest rates on credit lines are exorbitant. The depreciation of the naira has already exacerbated the cost of acquiring vehicles. If the 40% import tariff is implemented, it could lead to high transportation costs, increased vehicle smuggling, and an increased number of dilapidated vehicles, especially commercial buses. The middle class will continue to struggle with affordability issues.
Rather than impose more taxes on imported vehicles, some stakeholders have urged the federal government to build capacity for local assembly.