Private Sector’s Position on 2023 Fiscal Policy Measures
With the coming into power of the new administration of President Bola Ahmed Tinubu, members of the organised private sector are pushing for the reversal of the 2023 fiscal policy measures, writes Dike Onwuamaeze
The Organised Private Sector of Nigeria (OPSN), has risen in one voice to oppose the 2023 Fiscal Policy Measures. The OPSN is comprised of the Manufacturers Association of Nigeria (MAN), the Nigerian Association of Chamber of Commerce, Industry, Mines and Agriculture (NACCIMA), the Nigeria Employers’ Consultative Association (NECA), the Nigerian Association of Small Scale Industries (NASSI) and the Nigerian Association of Small and Medium Enterprises (NASME).
The bodies recently came together to strongly denounce and oppose the recently announced increase in excise rates as contained in the circular dated
April 20, 2023, that was signed by the former Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed.
The OPSN is also calling on President Bola Ahmed Tinubu to rescind the 2023 FPMs within his first 100 days in power to save the country’s manufacturing sector.
According to the OPSN, the increase contained in the 2023 FPMs is unwarranted, ill-timed and inimical to the Nigerian economy and the manufacturing sector in particular. It, therefore, called for its immediate reversal.
It argued that the manufacturing sector is presently grappling with unprecedented challenges, including the sustained scarcity of Naira, limited access to foreign exchange, a struggling economy and persistent inflation, alongside perennial problems of multiple taxation and epileptic power supply.
These challenges, it said, have resulted in a record crash in sales for most businesses running into billions of Naira, with the result that manufacturers are struggling to remain in business, amidst looming job cuts, mothballing of factories and total shutdown of businesses.
“Therefore, increasing excise rates at this time is extremely ill-advised and may sound the death knell for affected businesses and their contribution to the national economy, even as the broader manufacturing sector continues to deteriorate.
“In light of the above, the OPSN earnestly requests the federal government to urgently reverse the increase in excise rates to protect the affected industries and the dependent businesses in their extended value chain from imminent collapse with calamitous consequences for the economy.
“We further request that the federal government suspends excise taxes in the manufacturing sector for a minimum of six months, to arrest the alarming decline in the sector. Similar measures have been taken in countries like South Africa and the United Arab Emirates, in recent times.
“We would also like to use this opportunity to request that the Central Bank of Nigeria urgently deploys measures to fully alleviate the Naira scarcity crisis and prioritise foreign exchange allocations to the productive sector,” the OPSN said in a recent press release.
The members of the OPSN also acknowledged the efforts of the ex-President Muhammadu Buhari’s administration in supporting the manufacturing sector and remained confident that the new administration of President Bola Ahmed Tinubu, would look into its request and accord it “the prompt and positive response it truly deserves in the best interest of industry, government, and the Nigerian economy at this critical time.”
The joint statement by the members of the OPSN was jointly signed by Director General of Manufacturers Association of Nigeria, Mr. Segun Ajayi-Kadir; Director General of Nigerian Association of Chambers of Commerce, Industry and Agriculture, Mr. Sola Obadimu; Director General of Nigeria Employers Consultative Association (NECA) Mr. Adewale-Smatt Oyerinde; the Director General Nigerian Association of Small Scale Industrialists (NASSI) Mr. Ifeanyin Oputa and the Executive Secretary of Nigerian Association of Small and Medium Scale Enterprises (NASMEs), Mr. Eke Ubiji.
Apart from the joint statement, The Manufacturers Association of Nigeria (MAN) has bewailed the huge increases in excise tax for 2023 and 2024 as contained in the newly released FPMs for 2023.
THE ISSUES
MAN stated that the huge increases, which in some cases were up to 50 per cent on ad valorem and 75 per cent on specific duty rates, were over and above the already approved high increases of up to 50 per cent and 45 per cent respectively.
These increases, according to MAN, were contrary to the already approved 2022 to 2024 excise roadmap, as contained in the 2022 Fiscal Policy whose implementation commenced on June 1, 2022, but, “has unfortunately not even been implemented for up to one year, before government decides to ‘shift the goal post.”
Ajayi-Kadir bemoaned that “the industry cannot afford any further increases at these extremely challenging times.”
He further lamented that the increases were done without the government holding any consultation with affected manufacturers or carrying out assessment of their impact on the firms in particular and the economy in general.
He said: “We have earlier noted and forwarded our position on the excise duty tax to the government while it was being proposed in the 2023 Fiscal Policy Guidelines. We are again emphasising the fact that the proposed increase in the recently released 2023 guidelines i.e., on beer, wines and spirits, tobacco, has the potential to trigger unprecedented distortions in the affected industries as well as the entire manufacturing sector.
“The policy is capable of producing negative effect on investments with a huge consequence on job retention in these industries. We, therefore, strongly recommend that government should maintain the status quo regarding the already government-approved excise duty increases on these items in the three- year roadmap as contained in the 2022 Fiscal Policy Measures. This was approved by Mr. President and implementation commenced on June 1, 2022.”
The director general of MAN, sadly noted that “the unilateral action by the government despite the complaint and persuasion by stakeholders for the fiscal authority to consider the consequence on the industries, businesses and the economy as a whole is quite unfortunate.”
He stated that MAN has carefully studied the newly released Fiscal Policy Measures for 2023 by the federal government, but noted that “the increases in excise tax for 2023 and 2024 as provisioned in the said 2023 Fiscal policy, came as a surprise to us because, as a major stakeholder, MAN had actively participated in the deliberations on the proposal and presented various positions from its members across all sectors, especially those directly impacted by the proposed measures.”
MAN’S POSITION
Sounding betrayed by the federal government, the manufacturers association recalled that, “from the meeting held with the Honourable Minister of Finance, Budget and National Planning on March 29, 2023, MAN representatives were informed that the 2023 proposals on additional excise tax increases were being stepped down until further consultations on the 2023 Finance Bill.
The statement added: “Additionally, Nigeria Customs Service was notified by the Federal Ministry of Finance vide Memo Ref. No. F. 17417/351 of February 15, 2023, that the existing Fiscal Policy Measures for 2022 as they relate to alcoholic beverages and tobacco products will take effect from June 1, 2023, and June 1, 2024, as approved in the 2022 Fiscal Policy Measures roadmap for 2022 to 2024.”
Ajayi-Kadir said that based on the above that there would be no further increases on excise duty, MAN’s members had finalised their annual strategies and projections while exporting members had concluded pricing negotiations for orders to the end of fiscal period, on the strength of the agreed excise roadmap and recent assurance from the fiscal authority.
WARNING NOTICE
He warned that, “the release of the 2023 Fiscal Policy Measures, just over one month to its expected implementation date and the end of the current administration, sends negative signals to the business community locally and internationally with implications for existing and potential investors.
“It is worrisome that the current situation is indicative of inconsistency in government policy, given that industries that are affected by excise tax administration, already made three-year strategic plans based on the agreed calendar as scheduled in the roadmap including domestic and export sales prices, revenue and volume projections, tax burden calculations, etc.
“This in our opinion, may create credibility issues for the country with existing and potential investors, impacting Foreign Direct Investments (FDI) and the country’s Ease of Doing Business index among other implications.
“It is, therefore, alarming and concerning that the implementation of the 2022 to 2024 approved excise roadmap, as contained in the 2022 Fiscal Policy (which commenced on 1st June 2022) has unfortunately not even been implemented for up to one year, before government decides to ‘shift the goal post’.
The NECA has also issued its own statement that urged the federal government to reverse the newly introduced FPMs and Tariff Amendment for 2023, scheduled to take effect from June 1, 2023. It described the 2023 FPMs as a landmine for manufacturers and other businesses in the affected sectors of the economy.
Oyerinde, said in the press statement that was titled “The Fiscal Policy Measures and Tariff Amendment: NECA Urges A Reversal,” that the fiscal policy measure, as proposed would neither promote economic growth nor achieve the long-term revenue projections of the government.
He said “the circular by the ex-Honourable Minister of Finance, Budget and National Planning introducing the FPM and Tax Amendment, with increases ranging from 20 per cent – 100 per cent on previously approved rates for alcoholic beverages, tobacco, wines and spirits as well as the introduction of Green tax (10 per cent excise duty on single use plastics, including plastic containers, films and bags) and telecommunications tax of 5.0 per cent is not only worrisome, but also a landmine for businesses in the sector.”
He opined that “while the government's new FPMs would largely affect manufacturers, it also has the potential to disrupt the whole organised private sector’s value-chain, with consequential effects on Nigerians as a whole.”
Oyerinde stated clearly that while the OPS understood the revenue challenges faced by government, “the proposed increases will naturally spike the cost of production and reduce the competitiveness of Nigerian manufacturers in both local and international markets.
UNEMPLOYMENT RATE
“With recent reports of unemployment rate hovering over 40 per cent, the Nigerian economy will be further hard-pressed to withstand the likely loss of jobs that follow these increases.”
He averred that “it is no secret that Foreign Direct Investments (FDIs) to Nigeria has continued to slump as the country recorded only $1.06 billion in capital importation in the fourth quarter (Q4) of 2022. This brought total capital importation for the 2022 fiscal year to $5.33 billion, the lowest since 2017.
“A major factor is government’s seeming policy inconsistencies, which makes planning difficult. Beyond these consequences, the proposed increases, if implemented could aggravate smuggling, stifle growth of businesses in the sector, promote the production of fake products, reduce the purchasing power of Nigerians and ultimately reduce Government’s projected revenue across board,” he said.
While calling on the federal government to suspend the implementation of the newly introduced Fiscal Policy Measure and maintain status quo of no excise increase as prescribed in the 2022 Fiscal Policy Measures approved by the President earlier in 2022, the director general of NECA also argued that “government should, as a matter urgency and national importance suspend the implementation of the Fiscal Policy Measure and Tariff Amendment as currently proposed and revert to the 2022 Fiscal Policy Measure roadmap, built to expire in 2024, while extensive consultation with organised businesses is stepped up.
“With over 60 different taxes and levies currently being paid by organised businesses and about 20 bills pending at the National Assembly with financial implications for businesses, the best that Government can do is not to over- burden the sector or cause the relocation of many more to other climes. The fiscal policy measure, as proposed will neither promote economic growth nor achieve the long-term revenue projection of government.”
NACCIMA’S POSITION
Obadimu also told THISDAY that NACCIMA is indeed worried by the recent proposal of the ex-Minister of Finance and National Planning, advising the incoming government to increase VAT charges from 7.5 per cent to 10 per cent.
He said: In our last press briefing, we highlighted the negative impact of the 2022
Finance Bill which attempts to add more financial burdens on the OPSN. We expressed our fears that any further tax increase on businesses may lead to the shutdown of many SMEs and worsen the unemployment crisis in the country.
“NACCIMA is alarmed by this advice and therefore calls on the incoming government not to consider any form of tax increase, especially VAT. It is barely two years since the VAT rate was increased from 5.0 per cent to 7.5 per cent and, therefore, such advice is ill-timed.”