The aggressive drive by the Federal government to generate more revenue to fund its expenditure is having a backlash on its poverty alleviation programmes.
Many Nigerians are already groaning under the weight of taxes and charges as well as an increase in prices of commodities occasioned by land border closure.
The Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, said recently that the government had sent a Finance Bill to the National Assembly and the bill has several proposals.
“One of them is the increase in the VAT from five per cent to 7.5 per cent and we believe the National Assembly will do justice to the finance bill. Our target is to ensure that the finance bill is passed within the same period that the budget is passed and we feel it will enhance our capacity to be able to fund the 2020 budget,” she said in Washington.
Besides the tax raise, the FG has also indicated that it will tax luxury goods and carbonated drinks, although the FG hasn’t said by how much.
“In January this year, we launched the Strategic Revenue Growth Initiative, which was put together by all the revenue-generating agencies in the country led by the ministry of finance. Our objective is to be able to harness the existing revenue streams that we have by ensuring that enforcement is effective, to expand the tax base and also to identify new revenue streams that we can add to expand the revenue base,” she explained.
“But there is a process in doing these things. Any tax that you are introducing will involve a lot of consultations and also amendments of some laws or introduction of new regulations,” she noted.
From the CBN’s end, two major charges have irked the customers in the industry – the recently re-introduced stamp duty charge and the deposit handling charge.
Daily Trust on Sunday reports that the FG recently mandated the Central Bank of Nigeria (CBN) to strictly implement Merchant Service Charge which would impose more charges on all point of sale (PoS) transactions.
The new policy covers every transaction that occurs on the PoS platform, rather than the previous regime where charges are allied on aggregate transactions.
Thus, for every PoS transaction of a thousand naira or more, a stamp duty of N50 will be collected.
Financial expert Dr. Vincent Nwani, Managing Consultant/CEO, RTC Advisory Ltd has said the return of N50 stamp duty is capable of weakening the financial inclusion drive and financial development goal as a whole, especially within the environmental sphere of business activities which point to the enormous size of the informal market.
Nwani said: “It is instructive that citizens are aware that this directive has gone out, they must be aware that it does not change the prices of goods and services they seek to buy, but they will have to pay extra 50 if they use the POS machine as a means of settlement.
The new circular is a tax on the volume of transactions and could rake in billions in stamp duty charge for the government.
Nwani further explained that “It is also noted that the stamp duty charge is an anti-financial inclusion policy as it is capable of discouraging small businesses and the very poor from engaging in banking activities.
“We suggest that CBN should make a presentation to the authorities for a certain set of businesses, accounts and payment platforms such as the PoS to be exempted from the stamp duty charges.”
Only last month, the Central Bank of Nigeria approved additional charges for cash deposits and withdrawals above 500,000 for individual accounts and 3 million for corporate accounts.
The apex bank, in a circular, directed deposit money banks (DMBs)to charge on deposits, in addition to already existing charges on withdrawals, 3 per cent processing fee for individual accounts, withdrawals above N500,000.00 and 5 per cent for Corporate account withdrawals above N3 million. It also introduced processing fees for cash lodgments of 2 per cent above N500,000.00 for individual accounts and 3 per cent for lodgment above N3 million for Corporate accounts.
The CBN explained that the new charges on cash-based transactions are aimed at reducing the amount of physical cash circulating in the economy while encouraging more electronic-based transactions (payments for goods, services, transfers).
“If we are discouraging cash-based transactions, and at the same time imposing multiple charges on electronic-based transactions, the system may be running the risk of policy inconsistency that is capable of aggravating the already tensed ease of doing business environment in the country,” Nwani said
In a related reaction, the Manufacturers Association of Nigeria (MAN) expressed its concern over the possible implication of such a policy.
The Director-General of MAN, Segun Ajayi-Kadir, said: “Even though one may agree with the CBN Governor that it is in the public interest to promote an efficient payment system via the cashless policy, there is need to examine the route you choose to achieve that objective, and I think this is the crux of the matter and appears to be a recurring decimal in the administration of our monetary policy interventions.”
Dr Uju Ogubunka, the president of Bank Customers Association of Nigeria (BCAN), in his reaction said: “If we look at the peculiarities of our environment, we may be encouraging people to keep money in their houses with this kind of provision and if that becomes the outcome, are you then encouraging cashless or discouraging it?
“We may be trying to solve a problem and end up escalating it. Right now, this amounts to a penal charge for banking transaction because there are multiple charges on a single deposit and withdrawal.”
Airline operators groan over multiple charges, hike in fuel price
For airline operators, the operating environment under Buhari’s administration has been a mixture of blessing and discomfort. This is largely due to the rising cost of operations.
Chairman of the Airline Operators of Nigeria (AON), Capt. Nogie Megisson, said airlines pay no fewer than 30 different charges. This has reduced their profit margin even as most of them are struggling to remain in business.
Daily Trust on Sunday reports that from April 2016 till date, the price of aviation fuel known as Jet A1 has risen by over 110 per cent. From N105 per litre in 2016, the Jet A1 now costs almost N300.
From 2016 till date, the operators have also experienced epileptic supply of the product and most times acute shortage resulting in flight delays and cancellations.
Up till today, the operators are yet to heave a sigh of relief.
FG hiked electricity tariff in 2016, plans higher rates for 2020
The Federal Government hiked the electricity tariff payable by customers of the 11 Distribution Companies (DisCos) in 2016.
The rates increased by an average of 100 per cent. It drew protests from consumer groups and organised labour.
The rates under the Multi-Year Tariff Order (MYTO) 2015 were to be reviewed every six months, but that was not done until August 2019.
As of August, the agency in charge of electricity rates review and implementation – the Nigerian Electricity Regulatory Commission (NERC), approved five minor electricity tariff reviews that were pending since June 2016.
That ought to cause a spike in the average cost of electricity payable by consumers nationwide. NERC said the reviews approved were up to 2018, leaving out the first half tariff review of 2019.
The 11 DisCos revealed that there is an increase of at least N8 to over N13 per kilowatt-hour ( kwh ) of electricity supplied to the over eight million DisCos’ customers in Nigeria.
However, it has not been implemented by NERC pending the major review which ends in December.
By January 2020, Daily Trust reports that the result of the major review will spike electricity tariff.
A sample of the 2016-2018 Minor Review of Multi-Year Tariff Order 2015 and Minimum Remittance Order for the Year 2019′ document for Abuja DisCo shows that its end-user cost-reflective tariff remains at N46.44 kobo for customers.
However, NERC said it will allow the DisCo to collect N32.66/kwh. Residential customer of this DisCo had paid N24.30/kw before the new Order, indicating a difference of N8.
NERC said it computed N102.2 billion tariff shortfall for Abuja DisCo for the four years from 2015 to 2018 and will be reflected in tariffs. It also projected another shortfall of N52.1bn for 2019 and N6.2bn for 2020 which it will recognize in subsequent reviews.
In spite of the N102bn NERC recognized from 2015 to 2018, the tariff document shows that N73bn shortfall has not been catered for.
Consumer groups kick over hike
Many electricity consumers have reacted to the new orders for the DisCos, describing the tariff increase as sudden, and without proper customers’ consultation.
The Chairman, Nigerian Electricity Consumers Advocacy Network (NECAN), Chief Tomi Akingbogun, said his group was studying the tariffs on how they affect consumers. “We are going to meet. We just heard about it today. In the next few days, we will be able to give a collective decision.”
The President Nigeria Consumer Protection Network, Mr. Kunle Olubiyo, urged NERC to heighten its customer consultation, saying they were not properly carried along during the process of the minor tariff review which held in 2018.
Fuel price hike under Buhari
When President Muhammadu Buhari assumed office on May 29, 2015, the pump price of Premium Motor Spirit (PMS) otherwise called petrol was N87 per litre.
The government under his administration increased the price from N87 to between N143 and N145 on May 11, 2016.
The price has remained within the 143-145 price band since then, although the NNPC has continued to bear the burden of having to subsidise the product as the combined factors of rising oil price, inadequate FX for private importers and logistics problems have made the N145 per litre price unsustainable.
IMF to Nigeria: Raise your tax revenue
The International Monetary Fund (IMF) has told Nigeria to step up efforts to deepen its non-oil revenue.
The IMF particularly asked Nigeria to raise its tax revenues as Nigeria’s tax revenue is one of the worst in the world.
Ms. Cathy Pattilo, Assistant Director, Fiscal Affairs Department, IMF stated this during the Global Fiscal Monitor Report released recently in Washington DC.
The IMF said Nigeria currently has one of the lowest revenues in the world, and this is particularly so because of the drop in oil prices and poor revenue base in none oil sectors.
Oya Celasun, the Chief of the World Economic Studies Division of the IMF’s Research Department indicated during the public presentation of the World Economic Outlook at the just concluded World Bank/IMF annual meetings in Washington DC.
Nigeria has been battling with budget deficits year-on-year even as it funds almost half of annual budgets on borrowings – locally and internationally.
However, Song Muru, a PhD student in Economics from the University of Abuja said the proposed increase in numerous taxes may increase the country’s revenue as intended by FG but the effect on the income of the masses may not favour the masses.
He said that the current increase and creation of various taxes to increase government revenue when the leakages and bloated government costs haven’t been cut is not a wise idea for the government.
Yusuf Azeez, also a student of the University of Abuja, said “the reason why I don’t support this increase in tax is that it looks fraudulent not to cut the excesses and extravagant luxury of state officials while citizens suffer for it.
Another student, Ndanusa, said that companies would suffer if people did not demand goods and services because of VAT increment.
Kingsley Enahoro on social media said: “It is obvious Nigeria is broke or technically insolvent and the government of the day is looking for money anywhere to cover up their shame. What do you think this increase in VAT or charges on withdrawal and deposit is all about? Things are never what it is in the APC government.”
Professor Binta Yahaya, a professor of Economics at the Yobe State University, said the timing for increasing these taxes is wrong, stating that at this time the economy needs policies that would encourage more consumption and disposable income of the masses.
She explained that the government should not increase tax just to increase revenue, but introduce incentives and reduce interest rates and pump up consumption to help the economy grow instead of increasing taxes.
Also speaking, Professor of Financial Economics at the University of Abuja, Mohammed Yelwa, said although an increase in the various taxes may be effective in improving revenue, it may not generate the projected amount of revenue in the face of a likely increased level of non-compliance by those that are being taxed.
Dr Yelwa said that the non-compliance could result from an increased tax burden and other factors impeding effective tax collection and administration which the country is known for too well.
SMEs’ reaction to increase of VAT from 5 to 7.2 percent
Small and Medium Enterprises (SMEs) have been reacting to the increment of Value Added Tax (VAT) from 5 to 7.2 per cent by the federal government.
A shoemaker and CEO of Shoespeed Interglobal Services Limited, Lagos, Abiodun Folawiyo, said in developed countries like Italy, where SMEs have electricity, good roads, access to funding and more, people do not mind when the government charge exorbitant taxes because entrepreneurs know what they will do with it.
“But in Nigeria, after they collect money from us, you’d hear that someone stole N30bn. So, the tax they collect is not being translated to good use to provide infrastructure. There is no effort by the government to fix infrastructure in the country that will translate into reducing the Ease of Doing Business.
“I think the government should give SMEs tax holiday. They should declare a tax holiday for us and not tax increment. The rate of migration is so high. The government should make Ease of Doing Business more attractive for us and foreign investors,” he said.
- Media Report