CPPE Comment|2022 Fiscal policy measures-upsides and downsides

MON 18 APRIL, 2022-theGBJournal | The 2022 Fiscal Policy measures approved for implementation effective from 1st April 2022 has three major sections.

The first is the Supplementary Protection Measures [SPM] for the implementation of the ECOWAS Common External Tariff (2022-2026).

The second relates to excise duties on non-alcoholic beverages, cigarettes and tobacco products and telecommunications services.

The third is on import duty concessions on medical supplies for COVID intervention measures.

The Supplementary Protection Measures

The following are the key components of the supplementary protection measures:

1. Import Adjustment Tax which stipulates levies on 172 tariff lines. The purpose of the import adjustment tax is to offer protection to domestic industries against importation of finished goods.
2. Import Prohibition List: this is the list of items prohibited from being imported into the country and this is applicable to goods originating from non-ECOWAS countries. Domestic production capacity in respect of these products are high. The main objective of this list is also to protect domestic industries.

iii. National List: The National List consists of items with concessionary import duties and taxes. The objective is to reduce the cost of inputs and raw materials for domestic industries across various product groups. This is expected to stimulate growth and development in critical sectors.

1. The list of Medical supplies, especially those used for COVID intervention measures that now enjoy complete waiver of import duty and VAT. It is quite a long list of medical supplies. The idea is to ensure affordability of these medical supplies as much as possible.

The CPPE commends the government for putting in place this new fiscal policy measures with the objective of creating an industrial sector that is protected and supported for competitiveness.

Upsides and Downsides

1. While appreciating the intent and objective of the fiscal policy, we recommend that the Fiscal Policy Measures should be released alongside the Finance Act and the Appropriation Act. This would facilitate planning, reduce uncertainty, minimize investment risk and boost investors’ confidence. We propose that the Fiscal Policy should be released effective from the 1st of January.
2. The CPPE commends the grace period of ninety days that was provided for the implementation of the tariff component of fiscal policy. We commend the Finance Ministry for creating this transition window to minimize the shocks of fiscal policy changes on investors.

iii. The CPPE is concerned about the red tape inherent in getting approvals from the Federal Ministry of Finance for importation of items with concessionary import duty. We would like to see the removal of these bottlenecks. While appreciating the essence of the National list, we would like to propose that access to fiscal incentives should be devoid of bottlenecks and bureaucracy.

1. The experience of importers and the business community with seeking approvals from the Ministries before the fiscal incentives can be enjoyed is often fraught with frustrating bureaucracy, bottlenecks, delays and sometimes extortion. We therefore recommend that once the Fiscal Policy document had been approved by government, the Nigeria Customs Service should be left to fully implement these policies without further recourse to the Ministry for additional approvals. We believe that the Customs is competent enough to interpret the Fiscal Policy and determine eligibility for fiscal incentives. The idea if seeking approval and exemption certificates from Ministry of Finance or any other Ministry is not consistent with the spirit of the Ease of Doing Business and should therefore be discontinued.
2. The CPPE commends the removal from export prohibition list of items that were previously imported into the country. Before now, any equipment or item that are imported[sometimes for specialized projects in the country and which needed to returned back] were prohibited by extant law which states that any item imported cannot be re-exported. We are pleased to note that this policy has been reviewed under the 2022 Fiscal Policy. We have had instances where some specialized equipment, appliances or machineries were imported for temporary use and needed to be taken back to the country of origin because such re-exports were prohibited
3. We commend the approval by government of import duty and VAT exemptions on critical medical supplies especially for COVID interventions. Although the policy stipulates that the waivers and exemptions would only last till the end of 2022. We submit that these concessions should last beyond 2022 for the following reasons:

-The cost of Healthcare in Nigeria is extremely high and it is making access to healthcare very difficult for majority of its citizens.

-In the absence of a comprehensive health insurance scheme many citizens pay out of pocket and this has made access to Medicare very difficult.

-Access to healthcare is a critical component of human capital development. Therefore, the cheaper, the easier the access, the better for human capital development. We therefore submit that this concession should last beyond 2022.

Imposition of Excise Duties

Following the proposal last year by the Finance Minister that excise duties will be imposed on a number of products, the Manufacturers Association and other Business Associations pleaded with the government to suspend the imposition of excise duty for the following reasons:

-Industrialists are currently contending with high energy cost. The cost of diesel has gone up by over 400%.

-Public power supply has become increasingly unreliable.

-There is a slump in consumer purchasing power which is affecting aggregate demand.

-The imposition of excise duty makes Nigeria products more expensive relative to products from the neighbouring countries who are in the same economic community with Nigeria. The implication is that Nigerian industrialists will lose market share to countries in the West African sub region under the ECOWAS trade liberalization scheme because the cost of production in Nigeria is much higher and the imposition of excise duty will make domestically produced products even more expensive.

-There is also the welfare implication of the citizens whose incomes have been highly bartered by the high inflationary pressure.

-We therefore appeal once again that the timing of the imposition of excise duty of selected manufacturing firms is in auspicious and should therefore be suspended to demonstrate greater sensitivity to the plight of manufacturers in the Nigerian economy.

Role of middlemen in international trade

It is important to appreciate the role of traders and middlemen in the international trade process, especially from an inclusion perspective. Not all SMEs have the capacity to directly import their raw materials, machineries, equipment or other inputs on their own. It is the traders and middlemen that help to fill this gap in the economy.

It is therefore discriminatory and unfair to exclude middlemen and traders from the importation of raw materials, equipment, spare parts or machineries which may be required by some small-scale industrialists who do not have the capacity to import these items on their own. This policy position should be reviewed for the sake of economic inclusion and without prejudice to regulatory measures to ensure standards and quality.

Therefore, in the spirit of inclusiveness, traders and middlemen should be allowed to also import some of these items for onward sales in smaller quantities to small-scale industrialists.

Promoting renewable energy through fiscal policy

To facilitate energy access, and in line with the global trend on decarbonisation, fiscal policy measures should be aligned to promote better access to renewable energy.  We accordingly propose as follows:

1. A) Zero import duty on solar panels, inverters, solar batteries,
2. B) Zero import duty on all renewable energy equipment and installations.
3. C) Zero VAT on renewable energy equipment, including batteries.
4. D) Tax holidays for renewable energy companies in the country

The CPPE submits that if the government can budget N4 trillion [about $9 billion] for petrol subsidy, it should be able to afford these incentives to improve energy access and promote the development of renewable energy.  The potential benefits to the economy and the environment far outweighs the revenue loss from these concessions.

Policy conflict and monetary authorities  

We appeal to the federal government to intervene to resolve the conflict, contradictions and confusion currently exisiting in the trade policy space regarding the import prohibition list and the CBN Forex exclusion list. The lists are conflicting and disrupting trade. There are many items that are on the Forex exclusion list of the CBN which are not prohibited from importation under the extant fiscal policy of government. It isuntidy to have what we can describe as two sets of Trade policy document. One by the Central Bank of Nigeria, and the other by the Federal Ministry of Finance.

The presidency should reconcile these two lists in order to resolve the current policy conflict in our international trade ecosystem and minimize disruption to trade.We should not have a situation where an item that is not prohibited under our fiscal policy and being denied access to Form M by the Central Bank of Nigeria.

CENTRE FOR THE PROMOTION OF PRIVATE ENTERPRISE is a non-governmental organisation for promotion, protection and advancement of private enterprise

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