•Laments increased cost of production
By Merit Ibe
Nigeria’s Organised Private Sector (OPS) has raised concerns over the hike in electricity tarrif effective June 1 and the 7.5 percent value added tax (VAT) on the premium motor spirit (PMS), saying this was coming at the wrong time when manufacturers are grappling with the harsh economic realities worsened by the removal of fuel subsidy.
As electricity tariff is set to increase by over 40 per cent soon, eliminating all forms of subsidy in the country and the VAT on PMS, manufacturers and businesses seem to be envisaging tougher times.
Operators in the sector believe that while increase is unavoidable due to the changes in the parameters, households and small businesses, which should power the economy, may head for serious problems with energy costs alone rising as purchasing power remains a challenge in the face of unemployment and poverty.
Reacting to the situation, Director of Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, believes it is not the right time to introduce taxes on energy due to the recent deregulation of the PMS industry and the unification of the exchange rate.
He said new administration should allow reforms to settle down before implementing new ones.
“Although diesel and some other petroleum products have been deregulated, this is not a good time to reintroduce taxes or duties on energy as the government just removed the subsidy on fuel,” he said.
He advised that the new administration should give policies and reforms time to settle down, adding, “We don’t even know where the subsidy removal and unification of exchange rate will land us and a 7.5 per cent VAT is being introduced on diesel.”
He suggested that the savings the government will make from the subsidy removal should be channelled into sectors like electricity.
“The savings from subsidy removal
should be able to meet up government expenditures. Rather than introduce more taxes, the government should instead be thinking of some measures to alleviate stress on businesses.”
On the effect of the new VAT on diesel on prices of goods and services and the general cost of production, Yusuf said: “It will be difficult to give an estimate on the potential percentage increase a 7.5% VAT will cause on goods and services. However, energy cost as a representation of the total cost of production is around 25% and 30%.
“Going by this, a 7.5% VAT on diesel might result in something around 5% to 10% increase in the cost of locally manufactured goods”
He also expressed fears that a new VAT on diesel could erode the profit margins of manufacturers if they refuse to increase the prices of goods and services, adding that government can introduce VAT on energy at such a time when electricity is stable.
For the Chairman, Manufacturers Association of Nigeria (MAN), Apapa branch, Frank Onyebu, on the issue of VAT on petroleum products, he advised that the government should put a hold on that, saying Nigerians were still battling the removal of subsidy.
“ It will amount to insensitivity for the government to add to their plight. There are other sources of revenue the government could explore without creating new upheavals by adding to the burden of the common man.
Onyebu said he was not in support of the planned increase in electricity tariff, adding that the problem of the electricity distribution companies is not the tariff but gross inefficiency.
“It is quite unfortunate. I want to believe it’s still a speculation since there’s no official statement to that effect. However, we all know that most often than not, such speculations end up being confirmed.
“I do not support any increment in electricity tariff at this time. My reason has to do with the fact that the problem of the electricity distribution companies is not the tariff but gross inefficiency. The Discos are currently not run like businesses but like government parastatals.
“There appears to be a disconnect between management and staff. You don’t see any sense of urgency on the part of management or staff to resolve distribution problems. It takes days, sometimes weeks to resolve issues which could be resolved within hours.
“You hear stories like there are no vehicles for patrols to identify source of an outage, for instance. Sometimes there’s only one vehicle to cover a very wide area, even when there are multiple faults. Whenever there’s rainfall the whole system collapses.
Consumers, who are billed tens of millions of Naira a month, have to be the ones begging and cajoling the staff of these companies to come and fix the problems. Sometimes you are expected to pay to speed up the process. It’s so difficult to understand how private companies could be run that way.
“It doesn’t make sense at all. It’s like the owners don’t care. I think the owners know that they can always run back to the government to ask for tariff increases. The situation would be different if there was a real competition in the sector. I do believe that if consumers could choose between two or three Discos within an area, all the Discos would sit up.”