Three weeks to the swearing-in of the administration to be led by president-elect, Bola Ahmed Tinubu, manufacturers and economy stakeholders are raising concerns over tax policies the new government may unveil to address acute revenue shortages that have led to massive borrowing.
Tinubu, a former governor of Lagos has a history of adopting aggressive tax collection policies, which many industry analysts believe could have a great impact on the sector with an environment where only the strong will survive.
While the International Monetary Fund has called for tax increases in Nigeria to address present challenges, manufacturers are concerned the Tinubu government may adopt this recommendation and are instead advocating for tax and fiscal reforms to propel economic growth and development.
According to the World Bank, Nigeria has the fourth lowest revenue to GDP ratio in the world, a mere 7 percent in 2021. The World Bank however oil revenues, which are declining, could be 52 percent higher if the subsidy on Petroleum Motor spirit is removed. The real challenge is however in increasing the non-oil revenue.
The stakeholders, who spoke at separate interviews, at the weekend, noted that, while tax mobilisation would be instrumental to revenue generation for the next administration, they added that, it must be done in a way to bring new people into the tax system rather than overtaxing the existing tax payers.
Division chief, Fiscal Affairs department, IMF, Paulo Medas, whilst noting that Nigeria’s tax revenue is still below par at the last Spring Meetings in Washington DC, said: “what we advocate is raising taxes, which is going to create space, not only to manage debt, but also to spend on other priorities.”
The country is currently grappling with huge debt overhang of over N70 trillion, and the need to increase
Though the federal government is planning to increase tax on the encouragement of the International Monetary Fund (IMF), tax operators as well as the private sector players have said, it would be detrimental to the economy as it would further make the operating environment much harder.
revenue generation to meet expenditure requirements.
Nigeria spent 96.3 per cent of revenue on debt servicing in 2022 from 83.2 percent in 2021 which shows how the fiscal deficit has worsened the nation’s public debt stock, the World Bank has said.
Nigeria’s total public debt hit N46.25 trillion at the end of December 2022, data by the Debt Management Office (DMO) indicates
With N23.77 trillion ways and means, the total debt will amount to N70.02 trillion by May 2023 when the President-elect, Bola Tinubu, and governors will be sworn in.
Recall that just last week, the federal government borrowed $800 million from the World Bank for palliatives to ease the impact of fuel subsidy removal.
Ways and means implies facilities lent by the Central Bank of Nigeria (CBN) to the Federal Government.
The total debt could reach N80 trillion if N10 trillion is factored in from debt servicing and other federal government’s borrowings.
Compared to N39.56 trillion in December 2021, the country’s public debt increased by 16.92 per cent.
The Debt Management Office (DMO) says Nigeria’s total public debt hit N46.25 trillion at the end of the fourth quarter (Q4) of 2022.
Tinubu is also known to have a preference for using private operators and consultants as tax collectors, bypassing bureaucratic bottlenecks that limit the potential to increase revenue. Replicating the model could however leave more than 4000 staff of the Federal Inland Revenue Service redundant and would require amending federal laws.
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As Lagos governor, Tinubu, over a period of eight years raised the state’s Internally Generated Revenue from N1.2 billion in 1999 to N6.9 billion when he left office in 2007; a growth of 468 percent.
In response to the call for raising taxes, the president of the Chartered Institute of Taxation of Nigeria (CITN), Chief Adeshina Adedayo, stressed the need for the expansion of the tax net in the country as against increasing taxation which would place more burden on businesses.
Noting that expanding the tax net would help generate more revenue, he said, utilisation of the revenue gathered and productive accounting is also important.
According to him, transparency and accountability inspires confidence and letting more people come into the net without the same set of people being overburdened while other people are getting away with it, as the expansion of the tax base, is the way to go.
He also stressed that, tax education will have an ample effect on tax compliance and the rate which improves tax administration and make the policy that enhances the spread of taxation.
On his part, the chief executive of the Centre of the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, said the 2023 Fiscal Policy Measures of the federal government, would significantly hurt the economy and worsen the de-industrialisation worries in the Nigerian economy.
According to him, 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,” he pointed out.
He noted that the fiscal measures could lead to loss of direct and indirect jobs which could be in a couple of millions, adding that millions of farmers supply local inputs such as grains to the sector may lose their livelihoods, as there will be an elevated risk of smuggling in the country.
He implored the incoming government to take an overhaul review of the country’s foreign exchange policy reform for the betterment of the country’s economy on assumption of office.
He urged incoming government to use foreign exchange policy reform to unlock inflows of capital into the economy, reduce arbitrage in the forex market and improve transparency in the forex allocation are needed in urgency.
On trade and tariff reform, the CPPE’s director advised the new incoming government to ensure tariff regime that adequately protects local industries, import duty on intermediate products and critical industrial inputs should be reviewed to reduce production costs, tariff review processes should be more inclusive and transparent.
Meanwhile, the director-general of Manufacturers Association of Nigeria (MAN), Mr. Segun Ajayi-Kadir, explained that, the assumption is that the new government will move swiftly to fulfill those promises they made and thereby justify the confidence reposed by the electorates, saying, this is the essence of the social contract and in a democratic society, the government is expected to be accountable to the people and deliver on the promises made.
Ajayi-Kadir listed scarcity of foreign exchange, Naira devaluation, high cost of diesel/energy/gas, multiple taxes, charges, levies, unavailability of raw materials, delay in receiving imported raw materials and high cost of raw materials as some of the challenges limiting the growth of the manufacturing sector under the outgoing administration, calling on the incoming government to urgently address these concerns to grow the economy.
According to him, it is critically important that the identified current challenges of the sector by manufacturers themselves should be quickly taken up by the government with priority attention.
The issues of acute shortage of forex, high cost of raw materials, inadequate power supply, multiple taxes/levies, among others, he said, should be addressed so as not allow for further degermation in the activities of the sector.