The Federal Government of Nigeria has introduced new Fiscal Policy Measures (FPM) for 2023 via a Circular dated 20 April 2023 signed by the Minister of Finance, Budget and National Planning. Below are some of the highlights:
1. Supplementary Protection Measures (SPM) – this relates to the implementation of the ECOWAS Common External Tariff 2022-2026. 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. Items on the list include rice, woven fabrics, ceramics 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. The applicable duties for most of the items are unchanged from the 2022 FPM rates.
2. Revised Excise Duty Rates – additional excise taxes ranging from 20% to 100% increases on previously approved rates for alcoholic beverages, tobacco, wines and spirits have been introduced effective from 1 June 2023. These are further increases over and above the 2022 FPM’s approved Roadmap for 2022-2024 in the form of new and higher advalorem excise duties and specific rates. The excise duty rate on non-alcoholic beverages is however retained at the rate of N10 per litre.
3. Green Taxes – introduction of a Green Tax by way of excise duty on Single Use Plastics (SUPs) including plastic containers, films and bags at the rate of 10%. Also, an Import Adjustment Tax (IAT) levy has been introduced on motor vehicles of 2000 cc to 3999 cc at 2% while 4000 cc and above will be taxed at 4%. Vehicles below 2000 cc, mass transit buses, electric vehicles, and locally manufactured vehicles are exempted. The new rules take effect from 1 June 2023.
4. Telecommunication Tax – the 2023 FPM confirms the excise duty on telecommunication services earlier introduced via the Finance Act 2020 and prescribed in the Official Gazette No. 88, Vol. 109 of 11 May 2022 approved by the President. The tax is applicable on mobile telephone services (GSM), fixed telephone and internet services, both postpaid and prepaid at the rate of 5%.
Key issues and matters arising:
1. Legality – It should be noted that the Green Taxes are not supported by a specific enactment to provide the legal framework or delegated authority for the imposition of the tax as is the case for beverages and telecommunication services for instance.
2. Policy inconsistency – The additional excise taxes represent further increases over and above the previously approved rates per the 2022-2024 Roadmap approved via the 2022 FPM. It is policy inconsistency to approve tax rates for a period and then change the rules midway into the implementation without any compelling reasons or appropriate engagement with the affected industries especially at a time they have suffered significant sales decline due to the recent naira scarcity. What the industry needs from the government at this time is enabling policies, not additional tax burden.
3. Impact assessment – There is no information to suggest that a proper impact assessment was carried out to determine the impact of the new taxes on affected stakeholders across the value chain.
4. Stakeholder engagement – contrary to the requirements of the Approved 2017 National Tax Policy, there was no engagement with critical stakeholders especially the industries that are directly affected by the changes.
5. Commencement and transition arrangements– The 2023 FPM was yet to be published in the Official Gazette as at the time it was released. Section 13 of the Customs, Excise Tariff Act provides that an Order made under the law shall have effect from the date of its publication in the Gazette. Besides, the National Tax Policy requires a minimum of 90 days before the implementation of tax changes.
6. Utilisation of funds – The design of the Green Taxes and how the revenue generated will be utilised to fund CO2 net-zero initiatives appear hazy.
7. Compliance requirements – It is unclear how some of the new taxes will be administered such as the tax base for the Green Taxes, frequency of payment, compliance timelines, penalties, and detailed regulations to guide the administration of the tax.
To avoid the potential negative consequences of the new changes on the people, struggling businesses and the fragile economy, the 2023 FPM should be suspended and revisited.