40% hike in vehicle duties worsens transport crisis, poverty
Cost of importing vehicles, including mass transit units, and other imported commodities could increase by as much as 20 per cent in the coming weeks, a direct consequence of last week’s 40 per cent increase in the foreign exchange (FX) rate for clearing operations.
The possibility, experts have warned, would worsen the fear of a commuting crisis and the imminent increase in the poverty level. They added that the increase would complicate the inflation outlook, especially as Nigerians still rely majorly on importation for essential consumption.
The Nigeria Customs Service (NCS) official exchange rate on duties and levies on imported vehicles and other commodities was adjusted on Friday from N422.3/$ to N589.45/$, translating to about 40 per cent upward review. The new charges have taken effect across the board with importers of goods awaiting clearing being compelled to cough out additional money to get their cargoes out of the ports.
The review, which has raised the least duty to N1.097 million, followed the recent FX rates convergence, which has raised the official rate from about N462/$ to near N800/$.
The duty FX rate increase, stakeholders fear, will spell doom for the transport sector as well as importation and increase the poverty rate in the country, especially coming alongside fuel subsidy removal and planned hikes in electricity tariffs.
In the past eight years, the Customs exchange rate has continued to increase due to weakening naira. That has increased hardship for the masses and increased the cost of production for manufacturers.
In 2022, the rate rose from N409/$ to N422.3/$ while in 2021 the rate increased from N381/$. The previous year saw the rate rise from N361/$ to N381/$ before climbing to 409/$. In 2019 it rose from N306/$ to N326/$1.
In 2016, the rate witnessed several reviews. In September, the NCS reduced the exchange rate from N316/$ to N306/$, while in August, the rate rose from N282/$ to N313/$. In June, the exchange rate grew from N197 to N282. In 2015, it was reviewed upward, from N158/$1 to N197/$1.
The review of determining FX rate is in addition to the high 20 per cent duty on imported used and new vehicles and 15 per cent National Automotive Council (NAC) Levy on used vehicles and 20 per cent on new vehicles. There are other charges paid to the government, terminal operators, shipping firms and non-state actors (touts) before the vehicle could exit the ports.
Professor of Transport and Logistics at the Lagos State University (LASU), Samuel Odewumi, said the removal of subsidy and increase in customs duty rate is not helpful for the transport sector and the economy.
Odewumi, who doubles as Chairman of the Road Sector Committee, Chartered Institute of Transport Administration of Nigeria (CIOTA), said if there are no good vehicles, the transport sector would be affected, noting that transportation is the live stream through which every aspect of socioeconomic activities flows.
“We find out that those who are into the transport business are those who lost their jobs, such as industrial workers that have their private cars and then use it for commercial purposes to feed their families.
“A week ago, the e-hailing operators went on strike because they are being squeezed to the limit. With the money left for them after paying for fuel, operations, taxes from the government and the repairs of their vehicles, they could not break even”.
Deputy Managing Director of CFAO Motors, Kunle Jaiyesimi, also said the change would further increase the landing cost of vehicles and selling prices. He said it would hurt new vehicle acquisition and fleet decisions of companies.
Jaiyesimi lamented that the Form M valuation rate has already increased by 75 per cent coupled with the ripple effect of the subsidy removal and the July 1 proposed electricity rate hike. He said: “This is not the best time for commuters and transporters”.
According to him, some of the difficult decisions of President Bola Tinubu’s administration demand lots of sacrifices from Nigerians, hence the government should urgently institute palliatives for the downtrodden igerians so that they would not be completely emasculated.
The Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, condemned the increase in Customs import duty rate, noting that transportation costs have already gone up between 25 to 50 per cent.
For most citizens, he said, transportation is critical to their survival, adding that the hike in transport fares and the corresponding inflationary effect is already posing a threat to the livelihood of many, both within and outside the public sector.
According to him, wage earners, small business owners, informal sector operatives, artisans and the unemployed are all very vulnerable in the current circumstances.
“The sufferings are real and affect the citizens across all segments of our society –public service, private sector, informal sector, artisans, students, SMEs, the unemployed, aged, pensioners among others. There is, therefore, the need for urgent responsive actions from all tiers of government,” he said. He said it was unfortunate the agreement signed with the Nigeria Labour Congress (NLC) did not reflect the desired urgency of the mitigation measures.
Yusuf said it was also scanty on immediate actions and quick wins, which are needed to immediately assuage the feelings of ordinary citizens and stabilise the social environment.
Suggesting solutions, Yusuf advised the government on the right fiscal policy interventions in the interest of social justice and stability, which include waiving import duty, value-added tax (VAT) and other port charges on Semi Knocked Down parts for the assembly of mass transit buses immediately.
A former member of the Presidential Committee on Destination Inspection and Ministerial Committee on Fiscal Policy and Import Clearance Procedure, Lucky Amiwero, bemoaned the increase in import duty rate, saying with the inclusion of the rise in the cost of fuel and electricity tariff, the poverty rate would be extremely high as more people would be very poor.
Already, the National Bureau of Statistics (NBS) had, in its 2022 Multidimensional Poverty Index survey, said 63 per cent of people living in Nigeria, that is 133 million people, are multidimensionally poor.
Also, the Nigerian Economic Summit Group (NESG), in its 2023 Macroeconomic Outlook Report, projected the poverty headcount to rise to 45 per cent this year. NESG attributed the rise to weak performance in the job-elastic sectors, low labour absorption of sectors that will drive growth and population growth estimated at 3.2 per cent.
Also, the World Bank, in its Macro Poverty Outlook for Nigeria: April 2023, stated that about 13 million Nigerians would fall below the national poverty line by 2025.
The World Bank said the macroeconomic stability had weakened considerably due to multiple FX rates, high and increasing inflation, rising fiscal pressures and declining FX reserves.
Amiwero, who is also the president of the National Council of Managing Directors of Licensed Customs Agents (NCMDLCA), said the effect will be felt in every sector as many will lose their jobs while Small and Medium Enterprises (SMEs) will shut down as they can no longer sustain their businesses.
“This move is to increase poverty across the country. The indices are too high and the poverty is going to be too massive. When you put increased fuel, electricity tariffs, exchange rates and import duty at a time, all these things are going to have negative effects and there is no cushioning effect from the government.
Amiwero cautioned the government to be very careful about policies and their implementation, which will affect the people and the economy. He advised the government to have a quick resolution of all these issues and the need for a concerted effort to cushion effect and provide palliatives for the situation.
However, stakeholders said the increase in import duty rate and other fiscal policies of the government is already telling on the economy as importation has drastically reduced, which has also affected the revenue collection of Customs, adding that the more people import, the better it is for customs to collect duty for its revenue.
This is confirmed by the National Bureau of Statistics (NBS) foreign trade data that showed a 47 per cent drop in the volume of used vehicles imported into the country in 2022 to N325.05 billion from N617.48 billion recorded in 2021.
Also, the NCS was unable to meet the N3.1 trillion revenue collection targets for the 2022 fiscal year. The Federal Government had given the service a revenue target of N4.1 trillion, but the House of Representatives put it at N3.1 trillion.
Unfortunately, NCS was able to generate N2.6 trillion with a shortfall of over N4 billion, but the former Comptroller-General of the service, Hameed Ali, attributed the shortfall to bureaucracies in government policies, and others such as the fluctuation of the naira, fiscal policies and border issues among others.
Chief Executive Officer, Transtech Industrial Consulting, Luqman Mamudu, said his understanding is that the Naira is now floated. This means that the exchange rate will largely be determined by forces of demand and supply.
“I just bought at N773 per dollar at a bureau de change here in Abuja. Comparatively, the Customs rate is reasonable under the circumstances. Having said that, as long as we are import-dependent, the cost of imports of all items including automotive will be affected accordingly. I expect that Nigerians will begin to look inwards for their needs including automotive assemblers who must now prioritise and intensify effort in their local value-added agenda.”
The National Public Relations Officer, the Association of Registered Freight Forwarders of Nigeria (AREFFN), Taiwo Fatomilola, said already, there are many vehicles trapped at the port because of high duty for clearance.
He said the owners were already paying huge demurrage on the vehicles, adding that with the new customs rate, the vehicles will continue to stay there attracting more demurrage, which can lead the owners to abandon them.
Fatomilola lamented that despite Nigeria being an import-dependent country, the Federal Government has continued to implement harsh policies killing importation with the already existing bottlenecks affecting it. He said, while the Federal Government is implementing such policies with the belief of increasing revenue generation, the revenue is drastically dropping, especially with the drop in importation.
Fatomilola said this could be seen in the NCS’ inability to meet up with its revenue target for 2022, adding that this increase in the import duty rate will spell disaster for the government and its agencies’ revenue drive.
“Now there will be a drastic mass reduction in importation. The essence of bringing vehicles or any consignment into the country is for you to make sales, by the time you calculate the incidence of high cost on what you are going to sell, nobody will have patronage. Already, the economy is harsh and the masses do not have money to feed, where will they get money to buy that vehicle with a high price? Importation will drop and poverty will continue.
“Don’t forget the importer still pays illegal taxes to non-state actors on vehicles who harass containers, vehicles among others,” he lamented. Also, the Public Relations Officer, Tin Can Island Port Chapter, ANLCA, Onome Monije, said importers were already struggling to bring their trapped vehicles out of the ports, which accrued a lot of demurrage due to high duty, adding that with the new duty rate, it 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 on Friday, but because of network issues, they could not be captured. By today you already have 10 vehicles, which you planned on using N10 million to clear, but now with the new duty rate, you have to pay about N15 million. Where will they get the remaining N5 million? Even when they get a loan, they will still pay interest on it. It is still coming down to the consumers because they will pay extra,” she explained.
Monije lamented that Customs policies on duty and taxes, saying, while NCS migrated to the Economic Community of West African States (ECOWAS) Common External Tariffs (CET) 2022-2026 edition that set the duty for both used and new vehicles at 20 per cent as against the 35 per cent usually paid, the service found a way to bring back the 15 per cent removed through the National Automotive Council (NAC) levy, while new vehicles paid 20 per cent.
“Before now, when we were using 35 per cent, NCS reduced it to 20 per cent. Instead of leaving it as 20 per cent, they now added 15 per cent as an NAC levy. It means they just wanted to key into the ECOWAS CET, changing from 35 per cent to 20 per cent so it will look as if we have a uniform rate among the ECOWAS trading community,” she said.
Customs had in April 2022, migrated from the old version of the ECOWAS CET Tariff (2017-2021) to the new version (2022-2026) in line with the World Customs Organisation (WCO) five years review of the nomenclature.
The Service reduced the duty for used and new imported vehicles to 20 per cent as against the 35 per cent usually paid. Customs adopted the new tariff with few adjustments in the extant CET as directed in the Federal Ministry of Finance, which included 15 per cent NAC levy for a used vehicle, bringing the duty back to 35 per cent, while for new vehicles is 20 per cent, bringing the total duty to 40 per cent.
A car dealer, who is also the Chief Executive Officer, Ifeseun and Associate, Ibukun Ifedayo, said an increase in importation duty would automatically raise the cost of selling cars, which he said would negatively affect the transportation business. He said people would be unable to buy cars for transport business, while those that can buy, will increase the fares.
Ifedayo said the effects will also be greatly felt by car dealers as they won’t be able to make sales to make ends meet for their families.
“We are just facing an increase in fuel price and this one again is a very serious issue. Electricity tariff has been increased, all these coming together is not good for the people. It will go down to the common masses. If I have like 10 cars in my showroom and nobody is coming to buy them because of the expensive price, how will I feed my family when I don’t make a sale? The effect is more than what we are looking at because it will affect the whole economy,” he said.
Another dealer, Chief Executive Officer, Hackymrides, Akeem Soliu, said the increase in customs duty levy would lead to an increase in the prices of automobiles by dealers because they will want to maximise their profit after sales as well.
Another dealer, Chief Executive Officer, Hackymrides, Akeem Soliu, said the increase in customs duty levy would lead to an increase in the prices at which dealers will sell automobiles because they will want to maximise their profit after sales as well.
Soliu said affordability is expected to decline because the higher the cost of an automobile, the lower the demand for it, the cost of commuting will increase as well because the higher the price of an automobile, the higher the repair cost.
