A 40% increase in auto taxes exacerbates the transportation crisis and poverty

  • The lowest vehicle duty is now N1.1 million.
  • Nigerians would suffer terrible consequences, stakeholders warn
  • According to Mamudu, Nigeria should start looking internally for automobile assembly.
  • ‘Many stuck automobiles at the port will be abandoned’

Importing vehicles, including public transport units, and other imported commodities could cost up to 20% more in the coming weeks as a result of last week’s 40% hike in the foreign exchange (FX) rate for clearing procedures.

Experts have cautioned that the possibility would exacerbate fears of a commuting crisis and an impending surge in poverty. They warned that the hike will complicate the inflation picture, especially since Nigerians still rely heavily on imports for basic necessities.

On Friday, the Nigeria Customs Service (NCS) raised the official exchange rate on customs and levies on imported vehicles and other commodities from N422.3/$ to N589.45/$, a 40% increase. The increased fees have gone into effect across the board, with importers of commodities awaiting clearance being forced to pay more money to get their cargoes out of the ports.

The revision, which raised the minimum duty to N1.097 million, came in the wake of recent FX rate convergence, which increased the official rate from around N462/$ to near N800/$.
The increase in duty FX rates, stakeholders worry, will signal disaster for the transportation sector as well as imports, increasing poverty in the country, especially given the withdrawal of fuel subsidies and expected increases in energy tariffs.

The Customs exchange rate has risen over the last eight years as the naira has weakened. This has made life more difficult for the general public and increased the cost of production for manufacturers. The rate grew from N409/$ to N422.3/$ in 2022, while it increased from N381/$ in 2021. The rate rose from N361/$ to N381/$ the prior year before reaching 409/$. It increased from N306/$ to N326/$1 in 2019.

Several assessments were conducted on the rate in 2016. The NCS decreased the exchange rate from N316/$ to N306/$ in September, while it increased from N282/$ to N313/$ in August. The exchange rate increased from N197 to N282 in June. It was raised from N158/$1 to N197/$1 in 2015.

In addition to the high 20% tariff on imported used and new vehicles, there is a 15% National Automotive Council (NAC) Levy on used vehicles and a 20% NAC Levy on new vehicles. Other fees must be paid to the government, terminal operators, shipping companies, and non-state actors (touts) before the vehicle can leave the ports.

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According to Samuel Odewumi, Professor of Transport and Logistics at Lagos State University (LASU), the elimination of subsidies and increase in customs tax rates are detrimental to the transportation sector and the economy.
Odewumi, who also serves as Chairman of the Chartered Institute of Transport Administration of Nigeria (CIOTA) Road Sector Committee, stated that if there are no good vehicles, the transport sector will suffer, noting that transportation is the live stream through which all aspects of socioeconomic activities flow.

“We discovered that those in the transportation business are those who have lost their jobs, such as industrial workers who have private cars and then use them for commercial purposes to feed their families.”

“E-hailing operators went on strike a week ago because they are being squeezed to the breaking point.” They couldn’t break even with the money they had left after paying for fuel, operations, government taxes, and vehicle upkeep.”
Kunle Jaiyesimi, Deputy Managing Director of CFAO Motors, also stated that the adjustment will increase car landing costs and selling prices. He stated that it would have a negative impact on new vehicle procurement and fleet decisions for businesses.

Jaiyesimi noted that the Form M value rate had already jumped by 75% as a result of the subsidy removal and the projected July 1 electricity rate hike. “This is not the best time for commuters and transportation,” he remarked.

According to him, some of President Bola Tinubu’s difficult judgments need a lot of sacrifices from Nigerians, thus the government should promptly establish palliatives for the downtrodden igerians so that they are not fully emasculated.
Dr. Muda Yusuf, Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), denounced the hike in Customs import tax rates, saying that transportation costs have already risen by 25 to 50%.

He stated that transportation is crucial to the life of most residents, and that the increase in transit fares and the resulting inflationary effect is already threatening the livelihood of many, both within and outside the public sector.

Wage earners, small business owners, informal sector operatives, craftsmen, and the unemployed, he claims, are all particularly susceptible in the current climate.

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“The sufferings are real and affect citizens from all sectors of our society, including the public sector, the private sector, the informal sector, artisans, students, SMEs, the unemployed, the elderly, and pensioners, among others.” As a result, “urgent responsive actions from all levels of government are required,” he stated. He expressed regret that the agreement negotiated with the Nigeria Labour Congress (NLC) did not reflect the anticipated urgency of mitigation measures.
Yusuf added that it was also lacking in fast steps and quick successes, which are required to immediately soothe common residents’ concerns and stabilize the social situation.
Yusuf counseled the government on the proper fiscal policy interventions in the interest of social justice and stability, including promptly cancelling import duty, value-added tax (VAT), and other port charges on Semi Knocked Down parts for mass transit bus construction.

Lucky Amiwero, a former member of the Presidential Committee on Destination Inspection and the Ministerial Committee on Fiscal Policy and Import Clearance Procedure, bemoaned the increase in import duty rate, claiming that if the cost of fuel and electricity tariffs were included, the poverty rate would be extremely high because more people would be extremely poor.
Already, the National Bureau of Statistics (NBS) reported in its 2022 Multidimensional Poverty Index survey that 63% of Nigerians, or 133 million individuals, are multidimensionally poor.

In addition, the Nigerian Economic Summit Group (NESG) forecasted a 45 percent increase in poverty this year in its 2023 Macroeconomic Outlook Report. The increase was attributed by NESG to bad performance in job-elastic industries, limited labor absorption in sectors that will drive growth, and population growth predicted at 3.2%.
In addition, according to the World Bank’s Macro Poverty Outlook for Nigeria: April 2023, around 13 million Nigerians will fall below the national poverty line by 2025.

According to the World Bank, macroeconomic stability has deteriorated significantly as a result of numerous FX rates, high and growing inflation, mounting fiscal pressures, and dwindling FX reserves.

Amiwero, who is also the president of the National Council of Managing Directors of Licensed Customs Agents (NCMDLCA), believes the impact would be seen in every industry, with many people losing their jobs and SMEs closing down because they can no longer continue their companies.
“This move will exacerbate poverty across the country.” The indices are too high, and the poverty will be too widespread. When you combine increasing fuel prices, power tariffs, exchange rates, and import duties, all of these factors will have a negative impact, and the government will have no cushioning effect.

Amiwero advised the administration to use extreme prudence while implementing measures that will have an impact on the people and the economy. He encouraged the administration to resolve all of these concerns as soon as possible and to make a determined effort to mitigate the effects and provide palliatives for the situation.
However, stakeholders stated that the increase in import duty rates and other fiscal policies of the government are already having an impact on the economy, as importation has drastically decreased, affecting Customs revenue collection, adding that the more people import, the easier it is for Customs to collect duty for its revenue.

This is supported by National Bureau of Statistics (NBS) foreign trade figures, which show a 47% decrease in the volume of used vehicles imported into the country in 2022, from N617.48 billion in 2021 to N325.05 billion in 2022.
Furthermore, the NCS failed to reach the N3.1 trillion revenue collection targets for the fiscal year 2022. The Federal Government set a revenue target of N4.1 trillion for the service, while the House of Representatives set it at N3.1 trillion.
Unfortunately, NCS was able to generate N2.6 trillion with a shortfall of over N4 billion, but the service’s former Comptroller-General, Hameed Ali, attributed the shortfall to bureaucracies in government policies, as well as others such as naira fluctuation, fiscal policies, and border issues, among others.

According to Luqman Mamudu, Chief Executive Officer of Transtech Industrial Consulting, the Naira has been floated. This indicates that the exchange rate will be largely governed by supply and demand dynamics.

“I just bought a dollar at a bureau de change here in Abuja for N773.” Under the circumstances, the Customs rate is appropriate in comparison. Having said that, as long as we are import-dependent, the cost of all imports, including automobile, will be affected. I expect Nigerians to start looking inward for their needs, particularly car assemblers, who must now prioritize and increase their efforts in their domestic value-added agenda.”

Taiwo Fatomilola, National Public Relations Officer of the Association of Registered Freight Forwarders of Nigeria (AREFFN), stated that many trucks are already stranded at the port due to hefty clearance fees.

He claimed that the owners were already paying exorbitant demurrage on the vehicles, and that with the new customs rate, the vehicles will remain there, garnering even more demurrage, maybe forcing the owners to leave them.
Fatomilola noted that, despite the fact that Nigeria is an import-dependent country, the Federal Government has persisted to enforce severe regulations that are killing importation and causing bottlenecks. While the Federal Government implements such policies in the hope of improving revenue creation, he claims that revenue is severely decreasing, particularly with the drop in importation.

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This, according to Fatomilola, can be observed in the NCS’s inability to fulfill its income target for 2022, and this hike in the import tax rate will spell catastrophe for the government and its agencies’ revenue push.
“Importation will now be drastically reduced on a large scale.” The purpose of bringing vehicles or any cargo into the country is to make sales; if you compute the effect of high cost on what you are going to sell, no one will buy. Already, the economy is hard, and the masses do not have the money to feed themselves; where will they obtain the money to buy that expensive vehicle? Imports will fall, and poverty will persist.

“Don’t forget that the importer continues to pay illegal taxes to non-state actors on vehicles that harass containers and vehicles, among other things,” he bemoaned. In addition, Onome Monije, Public Relations Officer, Tin Can Island Port Chapter, ANLCA, stated that importers were already struggling to get their trapped vehicles out of the ports, which had accumulated a lot of demurrage due to high duty, and that the new duty rate could spell doom in the import industry.
“We have some vehicles on the sea coming, some are already here, and some have collected their value as of Friday, but they could not be captured due to network issues.” You already have ten automobiles that you expected to clear for N10 million, but with the higher duty rate, you will have to pay around N15 million. Where will the remaining N5 million come from? Even if they obtain a loan, they will be required to pay interest on it. “It’s still coming down to the consumers because they’ll have to pay more,” she explained.

Monije bemoaned Customs policies on duty and taxes, claiming that while NCS migrated to the Economic Community of West African States (ECOWAS) Common External Tariffs (CET) 2022-2026 edition, which set the duty for both used and new vehicles at 20% as opposed to the usual 35%, the service found a way to restore the 15% removed through the National Automotive Council (NAC) levy, while new vehicles paid 20%.

“Previously, we used 35%, but NCS reduced it to 20%.” Instead of leaving it at 20%, they have now added 15% as a NAC levy. “It means they just wanted to change the ECOWAS CET from 35% to 20% to make it appear as if we have a uniform rate among the ECOWAS trading community,” she explained.

Customs transitioned from the old version of the ECOWAS CET Tariff (2017-2021) to the new version (2022-2026) in April 2022, in accordance with the World Customs Organization (WCO) five-year review of the nomenclature.
The Service decreased the levy on old and new imported automobiles to 20%, down from 35% previously. Customs implemented the new tariff with little changes to the existing CET as directed by the Federal Ministry of Finance, which included a 15% NAC levy for used automobiles, putting the duty back to 35%, and a 20% NAC charge for new vehicles, raising the total tax to 40%.

According to a car dealer who is also the Chief Executive Officer of Ifeseun and an Associate, Ibukun Ifedayo, a rise in importation duty will inevitably raise the cost of selling cars, consequently impacting the transportation company. He predicted that many would be unable to purchase cars for the transportation industry, while those who could do so would raise their fares.

According to Ifedayo, the repercussions will be felt most acutely by vehicle dealers, who will be unable to make sales in order to support their families. “We are currently facing an increase in fuel prices, which is a very serious issue.” The electricity tariff has been raised, and all of this is bad for the people. It will reach the average people. If I have ten automobiles in my showroom and no one wants to buy them because they are too expensive, how will I feed my family if I don’t make a sale? “The impact is greater than what we are looking at because it will affect the entire economy,” he explained.

Another dealer, Akeem Soliu, Chief Executive Officer of Hackymrides, stated that the hike in customs tax levy will lead to an increase in automotive pricing by dealers since they will want to maximize their profit after sales as well.

Another dealer, Akeem Soliu, Chief Executive Officer of Hackymrides, stated that the hike in customs tax levy would lead to an increase in the prices at which dealers will sell autos in order to maximize their profit after sales.

According to Soliu, affordability is predicted to fall since the higher the price of a vehicle, the lower the demand for it. However, the cost of commuting will rise because the higher the price of an automobile, the higher the repair cost.

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