It’ll cripple businesses – Nigerians react to new tax on imported vehicles, alcoholic beverages

The Federal Government recently announced the imposition of a new levy it called Import Adjustment Tax (IAT) on imported vehicles. Under the new levy, which comes into effect from June 1, 2023, importers will pay additional two per cent levy on vehicles with 2 litres to 3.9 litres engine while four per cent levy will be paid on vehicles with engines of 4 litres and above. The new levy is in addition to the existing 70% tax (35% import duty and 35% levy) being paid by importers of vehicles. The government also said it would charge excise duty of N75 flat per litre of beer, stout and wine imported or produced in the country, as against the prevailing ad valorem excise duty regime.
SHIPS & PORTS’ Oluwatoyin Amao sought the opinion of Nigerians on the tax regime.

The new taxes would cripple imported used vehicles sector in the country. With the introduction, the prices of used vehicles would be above the reach of middle class Nigerians.

Joshua, Lagos

For me, I don’t understand what the government is doing. The implication is that it is not only the people who are into auto business that will feel the impact of the new levy but the whole Nigerians. Some investors will leave the business because they are unable to cope with the increment because by the time they use the new tariff to clear their vehicles, they will include the money on the vehicles at point of sales. The buyers who are middle-class Nigerians will be the ones to suffer it more. This is the wrong timing for this increment.

Lanre, Abuja

The increase is unwarranted, ill timed and hostile to the Nigerian economy and there is need for immediate reversal. Nigerians are presently grappling with unprecedented challenges including the sustained scarcity of naira, limited access to foreign exchange, a struggling economy and persistent inflation, alongside perennial problems of multiple taxation and epileptic power supply. These challenges have resulted in a record crash in sales for most businesses running into billions of naira, with the result that manufacturers are struggling to remain in business, amidst looming job cuts and total shutdown of businesses. Therefore, increasing excise rates at this time is extremely ill-advised and may sound the death toll for affected businesses and their contribution to the national economy, even as the broader manufacturing sector continues to deteriorate. I want to urge the Federal Government to urgently reverse the increase in excise rates to protect the affected industries and the dependent businesses in their extended value chain from imminent collapse with disastrous consequences for the economy. Also, the Central Bank of Nigeria (CBN) should urgently deploy measures to fully alleviate the naira scarcity crisis and prioritise foreign exchange allocations to the productive sector.

Michael, Lagos

The revised excise duties might wipe out the brewery and other related sectors because they are already dealing with high costs of foreign exchange, high energy costs, transportation, and multiple taxations. I must say that the government has not been fair to the alcoholic industry. Many are struggling. And these new taxes might close their shops because they are already dealing with the problem of sales as a result of weak demand caused by the high inflation in the country. The increased rates would reduce the industry’s revenues and profits, thereby affecting their ability to pay for other taxes like education, company income, and value added tax. You don’t increase revenue by killing the people who are giving it to you. Alcohol manufacturers should as a matter of urgency begin an aggressive campaign to inform their customers about the latest development. They need to make noise or campaign about the tax increment to let people know that the government is taxing them massively. That is the only way they can pass costs without any negative impact on their business. But in the actual sense of it, some alcohol consumers who are addicted to drinking and are struggling to satisfy their urge may find the new tax regime so hard.

Abiye, Lagos

The release of the 2023 Fiscal Policy Measures just over one month to its expected implementation date and the end of the current administration sends negative signals to the business community locally and internationally with implications for existing and potential investors. It is therefore alarming and concerning that the implementation of the 2022 to 2024 approved excise roadmap, as contained in the 2022 Fiscal Policy has unfortunately not even been implemented for up to one year, before government decided to shift the goal post. The proposed increase in the recently released 2023 guidelines i.e., on beer, wines, spirits and tobacco has the potential to trigger unprecedented distortions in the affected industries as well as the entire manufacturing sector. The policy is capable of producing negative effect on investments with a huge consequence on job retention in these industries. I want to urge the government to maintain the status quo regarding the already approved excise duty increases on these items in the three-year roadmap as contained in the 2022 Fiscal Policy Measures which was approved by Mr. President and implementation commenced on 1st June 2022. The industry cannot afford any further increase at these extremely challenging times.

Sesan, Ilorin

The new levy introduced on the imported vehicles is as good as closing the business. The Federal Government should have closed down the businesses instead of using this system to suffer Nigerians. For me I don’t understand this type of thing. The implication is that it is not only the people who are into auto business that will feel the impact of the new levy but all Nigerians. Some people will fizzle out of the business and by the time they use the new tariff to clear their vehicles, they will include the money into the vehicles when they want to sell it and the buyer will be the one to suffer it more.

There is no justification for high import duty on imported used vehicles by the government. There is an increasing affordability problem for Nigerians with regard to vehicle acquisition, especially by the middle class of the society.

The cost of locally assembled vehicles are beyond the reach of most Nigerians, contrary to the assurance given by government at the inception of the auto policy. There is limited access to credit for vehicle purchase by Nigerians.

Over 90% of purchases are done out of pocket, which is extremely challenging and where the credit facilities exist, the interest rates are outrageous – between 25 and 30 per cent. The economy has experienced huge exchange rate depreciation which has already worsened vehicle acquisition cost in the first place. It is therefore insensitive of policy makers to impose this tax on vehicles in an economy where there is no mass transit system and where vehicle ownership has become a necessity, especially for the middle class.

Sanya Uche, Lagos

This policy would lead to high transportation cost as vehicles costs increase, risk of increased vehicle smuggling, especially through the porous borders. The number of rickety vehicles, especially commercial buses will remain high as replacement cost becomes prohibitive. The middle-class will continue to contend with affordability problems.

Tunji Aremu, Abuja

With this policy, the volumes of alcohol and tobacco products will reduce since they are not matters of absolute necessity for consumers. Slimmer profits margins for the companies and returns on investments for shareholders should be expected. For companies in the brewery industry, the combination of reduced consumption and lower profit margins may knock them out of business or struggle to survive, which could eventually lead to job losses. Ultimately, it will affect the supply chain from the people who supply the raw materials to those involved in the transportation and distribution of the products in the country, further causing a decline to the gross domestic product. I know the negative impact would only last for the next quarter or two quarters till the new administration, which takes office in May, reviews the policy.

Odunayo, Lagos

All the government does is introduce new taxes or increase existing ones without commensurate infrastructural development to show for the taxes collected. I think the approach the government should take is the older a vehicle is, the higher the rate of import duty and the newer your vehicle is, the lower rate of duty. That way, the government will appropriate revenue. I believe that is the essence of the collection of levies and taxes.

What most Nigerians are saying about the issue of tax is that if and when we pay these taxes, what does the government do with it? That is the question people are asking and government should be able to give answers adequately.