Recently, the Nigeria Customs Service (NCS) adjusted its FX for import tariff to N1,413.62/$ from N1,356/$. The adjustment came after it hiked the tariff from N951/$ to N1365 per US dollar on February 2. The adjustment has already been effected in the government’s single window trade portal. The NCS justified the decision based on the recent Central Bank of Nigeria (CBN) monetary policy measure. In this year alone, the NCS and the CBN have raised the import duty by 48.5 per cent by jerking up the dollar assessment rate of imported items.
The tariff hike, which represents 4.18 per cent for the month of February, will force manufacturers and importers to re-evaluate their production processes and financial strategies. This means that importers will pay more to clear their goods at the ports. Already, prices of goods have reportedly tripled since President Tinubu took office.
Though the hike will result in more revenue for the government, it has many disadvantages. Apart from economic challenges, it will also fuel inflation, which currently stands at 28.9 per cent. More industries will shutdown in the coming months if the import duties are not reduced or reversed. The hike will increase the economic hardship in the country.
The hike shows that government lacks the foresight to chart a new course for the economy after ending fuel subsidy on May 2023. The tariffs collected by the NCS vary, between 5 per cent and 35 per cent. They are assessed with reference to the prevailing harmonised commodity system. The new import duty will lead to high cost of clearing goods.
Already, the new hike on imported commodities has increased the prices of staple foods as well as machinery, pharmaceutical equipment and others. The Manufacturers Association of Nigeria (MAN) has raised the alarm that the adjustments of FX rate for duties on imports will hamper the Ease of Doing Business in the country. In the first-half of 2023, the association said its members borrowed N1.8trillion to remain in business.
Currently, Nigeria’s FX market is very volatile with the depreciation of the naira despite injection of millions of dollars into the market. Although the NCS has maintained that it does not engage in arbitrary increase or decrease in exchange rate, that exchange rates for cargo clearing at the port are based on the CBN policy, the burden of the new import duty on importers is huge.
According to maritime experts, an average 40-ft container that used to be cleared with N3.8 million as of May 2023, is now reportedly being cleared with no less than N17 million. This represents over 500 per cent hike. Other charges along the line amount to N4million. The development will lead to loss of jobs, which will worsen the unemployment rate.
Shipping lines and terminal owners are reportedly running far below capacity. If the recent adoption of spot FX rate in calculating duties on imported commodities is not shelved, it will discourage potential investors, especially those in the real sector. Apart from worsening inflation rate, operating costs of businesses may escalate beyond the reach of an average manufacturer or importer. In the end, the economy will suffer.
Let the government shelve the import duty hike considering the present multiple headwinds that businesses in Nigeria are grappling with. It will also deplete the fortunes of operators in the maritime sector. According to a recent report by the Centre for Promotion of Private Enterprise, the current duty policy will make the cost of importation through the official channels more prohibitive, and induce smuggling.
This will make international trade process increasingly unpredictable, as well as impact negatively on the cost of essential imports, including raw materials for manufacturers, energy and petroleum products. No matter the argument in favour of stability in the import duties market, the rush to implement the high import tariff will stifle the economy.
Rather than the present arbitrary approach to arriving at import FX tariff, the NCS should address the challenges in revenue collection. It should strive for a systematic and effective intervention controls necessary to meeting the demands of the growing local and international investors. The CBN should stop its present policies that are causing more disruptions in the economy. The economy needs good policies that will stimulate growth in critical sectors. Above all, let the government focus on fiscal policies that will grow the economy.