The charging and waiving of Customs duty are an integral part of the tax system in any country which governments routinely use in the attempt to influence economic and industrial development with the aim of furthering its national objectives.
In several developing counties, for instance, governments provide tax incentives, which include duty waivers, to encourage capital formation in selected industries. Such incentives must however meet the characteristics of a good tax system, which include fairness, transparency and even handed application.
This has not been the case in Nigeria as successive governments have serially abused the duty waiver regime, making it an increasingly popular but disturbing method of misappropriating government revenue.
All manner of indiscriminate waivers of tariffs and duties on imported commodities under the directive of the Presidency have been granted to those who were able to buy their way through. Although the President has powers to grant waivers, such powers should be exercised with restraint and without undue favours.
The granting of indiscriminate waivers to individual operators in an industry rather than to the entire industry distorts economic and industrial development, which should normally be the very essence of granting such waivers.
It has for instance been asserted that in the run-up to the 2007 elections, verifiable reports by the House of Representatives Committee on Customs and Excise indicate that Nigeria lost over N380 billion in import duties, which were waived by the Federal Government to crony importers. The usual mechanism for operationalising this was for the sitting President to grant favours to supporters of the ruling party who in turn donate generously to the party and its candidate.
The government of Umaru Yar’Adua, upon assumption of office, immediately moved to check this abuse. In September 2007, Yar’Adua’s Finance Minister, Shamsuddeen Usman inaugurated a panel headed by Senator Udoma Udo Udoma to review import duty waivers and tax exemptions granted by the administration of former the President During the panel’s inauguration, Usman clearly stated that the practice of granting duty waivers and tax exemptions had been suspended.
Although the panel was given eight weeks to submit its report, the Federal Government till date has not published any such report. In no time, Customs duty waiver resurfaced.
Goodluck Jonathan, who took over the reigns of power after the demise of Yar’Adua in 2009, also continued the unfortunate waiver policy. In 2011 alone under Jonathan, the Federal Government lost N37.2billion to import duty waivers granted “importers of raw materials”. This was equivalent to seven percent of the total Customs collection for that year.
In February 2014, then Minister of Finance, Dr. Ngozi Okonjo-Iweala acknowledged abuse of the waiver regime by her boss, President Goodluck Jonathan. She admitted that the import waiver system was lopsided and was not in conformity with international best practices, adding that it provided an unequal playing field for businesses operating in the country.
It is therefore heartwarming to learn that the Federal Government, as it continues to consider options to finance the almost N3 trillion gap in its N6.08 trillion 2016 spending plan still before the National Assembly, may have cancelled most of the import waivers granted some Nigerians as well as operators in certain sectors of the economy by past government.
The action, which is aimed at revving up revenue to close the widening gap in the budget occasioned by the continuous fall in the price of crude oil at the international market, is commendable.
Should there be need to reintroduce the waiver policy in future, it must be managed in a rational and dispassionate manner. Waivers must be granted in line with long-term objectives and the demands of a sector.
Once government grants waiver to a sector, every player in that sector must be entitled to it. Waivers generally must be used as part of an industrial or sectoral policy as incentives to attract investment and development.
Indiscriminate granting of import duty waivers is not only a drain on the nation’s resources; it undermines local manufacturing and concentrating the commonwealth in the hands of a privileged few.
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