New Tax Policy: Looking In The Wrong Places

It is common knowledge that the Nigerian economy is facing a number of challenges, including high rate of inflation, low growth rate, and a persistent fiscal deficit. In the light of these, there has been much debate about whether the government should impose new taxes to help boost revenue or adopt measures to address other manifest economic issues.

It is important to note that tax policies can have significant impacts on the economy. While taxes are necessary to fund government services and programmes, excessive taxation can stifle economic growth and discourage investment.

The recently introduced tax policy under the framework of Fiscal Policy Measures (FPM) 2023, brought about additional excise taxes ranging from 20 per cent to 100 per cent on alcoholic beverages, tobacco, wines and spirits.

By the provisions of this policy, Nigeria will begin to tax single use plastic while a government circular also confirmed that five per cent telecommunication tax has been approved. The changes are effective from 1 May 2023 subject to 90-days grace period for importers who had opened Form M before 1 May 2023.

The affected items are: rice, woven fabrics, ceramic tiles and sinks, steel, containers for compressed or liquified gas, aluminum cans, washing machines, electric generating sets and rotary converters, smart phones, new and used passenger motor vehicles and electricity meters.

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On the Revised Excise Duty Rates, additional excise taxes ranging from 20 per cent to 100 per cent increase on previously approved rates for alcoholic beverages, tobacco, wines and spirits have been introduced effective from 1 June 2023.

Also, as part of Nigeria’s commitment to climate change adaptation and mitigation to environmental degradation, a Green Tax made up of excise duty on Single Use Plastics (SUPs) and Import Adjustment Tax (IAT) Levy has been introduced on Motor Vehicles of 2000 cubic centimetres (cc) and above.

This tax also imposes five per cent on services provided by mobile telephony service providers and operators (GSM), fixed telephony operators (fixed and wireless), internet services providers (ISPs) and other operators, effective 22 May 2022.

The additional excise taxes represent further increases above the previously approved rates per the 2022-2024 Roadmap approved via the 2022 FPM.

In our considered opinion, changing the rules midway into implementation of the roadmap is not the best practice and is expected to significantly impact projections made by businesses, especially considering the prevailing economic realities such as currency (both naira and foreign exchange) scarcity.

We are persuaded to argue that the government needs to consider the impact that new taxes could have on ordinary Nigerians many of whom are already struggling to make ends meet in the face of high unemployment, rising food prices, and a weak currency. New taxes could increase the cost of living for many people, placing an additional burden on already stretched households.

There are other options that could be applied in the effort to address the fiscal deficit and at the same time boost revenue. In as much as we concede the fact that the government is confronted with significant economic challenges, it is pertinent also to point out that imposing new taxes is not the solution. The government should focus on policies that support economic growth, reduce wasteful spending, improve tax collection through the elimination of corruptive influences as well as enforce the processes so as to ensure that all eligible tax payers are captured within the net.

It is regrettable, in our view, that Nigeria has relatively low rates of tax compliance, which means that a significant amount of revenue is lost each year due to tax evasion.

Another alternative strategy is to reduce wasteful spending and corruption within government. Nigeria has a long-standing issue with corruption, which has resulted in significant amounts of public funds being misappropriated or wasted on inefficient projects.

The government could also consider exploring alternative revenue streams, such as through the development of natural resources, the promotion of tourism, or the expansion of the agricultural sector. These sectors have significant potential to generate revenue and create jobs, and could provide a more sustainable source of income for the government in the long-term.

Overall, it is clear that the federal government’s current focus on imposing new taxes is a short-sighted approach that fails to address the underlying issues facing the Nigerian economy. It is our opinion that the government is looking in the wrong places for the much-needed revenue.

For instance, the massive stealing of the nation’s hydrocarbon resources creates gaps in the revenue generating process. Even worse, in our opinion, is the not-too-sufficient interest in the non-oil sector presently dominated by ‘illegal’ miners.

In the meantime, we urge the government to consider suspending the FPM 2023 and engage stakeholders to address the various concerns raised, clarify potential ambiguities and prepare detailed regulations to accompany the policy before implementation is commenced.