Maximising gains of border closure through import duty reduction

There is no doubt that Nigeria’s border closure, especially the Benin-Seme border, has dealt a severe blow to the thriving vehicles smuggling business across Nigeria-Benin border. Many of the companies in Cotonou that specialize in importing vehicles and smuggling them into Nigeria have been reported to have closed shops. Indeed, sanity appears to have been restored on this notorious border.

This is no mean feat for this government. However, while the federal government basks in the euphoria of this achievement, it is pertinent that it makes deliberate efforts to re-direct all the country’s imports to Nigeria. The customs duties and port dues and levies that have been going to Benin must be returned to Nigeria. And this can only be achieved if something is done to change the situation that drove Nigerian car importers to the neighbouring ports. Expecting them to come back because of the turn of events might be mere wishful thinking. Just appealing to them or cajoling them to do their business through Nigerian ports will equally not change anything.

Against this backdrop, the appropriate action that should be taken is the review of the prevailing import duty on vehicles. This singular action will enable the country to reap maximally from the border closure.

Quite appropriately, since the border closure, government has been urging Nigerian importers/dealers, especially those that do business through the neighbouring ports of Cotonou and Togo to start using Nigerian ports. In as much as this is the proper thing to do, government must do something to address the obstacles that make the nation’s ports unattractive to them. The high cost of goods clearance at our ports must be addressed.

As a matter of fact, the astronomical increase in import duty on vehicles was the major reason many Nigerian importers abandoned the nation’s ports for Cotonou and Lome ports. For a car importer to bring in cars through our seaports, he will have to pay 35% duty and 35% levy making it a total of 70% duty –a bitter pill which the vehicles importers found too hard to swallow.

This import duty hike came with the automotive policy that has now been suspended. The policy drove import duty of vehicles from 10% to 35% with an additional 35% levy. The high duty was meant to discourage car imports in order to encourage Nigerians to patronize the envisaged Nigerian-made or assembled cars. However, the automotive policy failed woefully as it could not make any impact on the nation’s automotive industry. Instead of positive impact, it drove car imports and sales business to the neighbouring Benin Republic, making Nigeria a complete loser.

Since the policy was introduced in 2013 Nigeria has lost colossal revenue that would have been collected as wharf dues and customs duty. The employment that would have been created for drivers, auto electricians, panel beaters, painters was also exported to Benin.

To maximize the gains of the border closure, therefore, it is imperative that a new vehicles import duty regime be announced, without prejudice to a new automotive policy that might be put in place. It is pertinent that this is done before the borders are re-opened in order to discourage Nigerian importers from continued patronage of foreign ports, and to reduce the smuggling of vehicles across the borders to the barest minimum. No one should be deluded to think that smuggling of vehicles into Nigeria will disappear when the border eventually re-opens.

Notably, the Nigerian Customs Service has been stringently calling for the review of vehicles import duty back to 10%. In January this year, the Customs Comptroller-General, Hameed Ali appealed to the federal government to bring import duty on vehicles down to 10% while the 35% levy could be retained to bring the total import duty to 45% instead of 70%.

Making the call at the 2019 International Customs Day celebration with the theme, “SMART Borders for Seamless Trade, Travel and Transport”, Ali had said:

“What I suggested, which is something we have been suggesting, is on automotive duty. If you know how the duty has been shared; we have 35% duty, 35% levy. But if you import a brand new vehicle to Nigeria you pay 70% duty. From what we have done –analysis and statistics –I discovered that this duty has now driven most of our importers to our neighbouring ports.

“Also, it has increased the rate of smuggling into this country. Having interacted with our stakeholders, what we discovered is that the sudden increase in duty is what is driving them to other ports. And the 35% was for us to encourage our own automotive industry in order to ensure that we develop, but 20, 30 years down the road we cannot develop it and we are giving away a lot of money.”

“So we are advising and we will continue to do that, that government should review the levy. And we are asking that it should be reviewed close to about 10%. If you do that, it means that collecting duty from new vehicle will be about 45% as 35% is the duty and 10% is the levy.”

The Customs CG said with such a duty there will be an increase in the volume of importation, and the lives of Nigerian citizens being lost to smuggling will reduce, and customs will collect more revenue for the development of the country.

Also calling for the review of the now suspended automotive policy, and by extension the high duty rate of imported vehicles earlier in the year, the Director-General, Lagos Chamber of Commerce & Industry (LCCI), Muda Yusuf, said the welfare of the people, government revenue and the capacity of the economy to create jobs had severely been affected by the policy, besides causing massive trade diversion to neighbouring countries.

He observed that the cost of vehicles had risen beyond the reach of most citizens and corporate bodies, while impacting negatively on businesses.

Since the suspension of the auto policy last month, vehicles importers have been clamouring for the downward review of 70% tariff on imported vehicles, questioning why the high duty rate is still being paid when the automotive policy that brought the tariff hike had been suspended.

The Chairman of Progressive Car Dealers Association, Chinedu Ukatu, who spoke to Ships & Ports recently wondered why importers were still paying the 70% tariff on imported vehicles after the announcement of the suspension of the auto policy.

“The government said they have suspended the policy but when you go through the port to clear your vehicles, you still pay 70 percent and nobody is telling us why a policy has been suspended and we are still paying the same tariff. We have tried to get clarification even from Customs and the Ministry but it appears government is confused somewhere.

“Government should look at the policy holistically. If they have suspended it, then let there be clarifications on what they suspended and what they did not suspend so that we will know where to start the dialogue from. Government should come out clear on this.”

However the argument goes, it has become imperative that the high import duty on imported vehicles be reviewed to maximize the gains of the border closure, and to discourage Nigerian importers from continued patronage of neighbouring ports.