Why Common External Tariff may not work in Nigeria

 By Shulammite Olowofoyeku

When the Federal Government finally gave the nod for the implementation of the Economic Community of West Africa States  (ECOWAS) 2015- 2019 Common External Tariff  (CET) on April 11, from the earlier scheduled commencement January 1 date, it was roundly applauded by stakeholders in the supply chain especially importers and clearing agents.

The directive was conveyed by the Coordinating Minister for the Economy/Finance Minister, Ngozi Okonjo Iweala through the Nigeria Customs Service.

With this development, all imports arriving into the country beginning from April 11 shall be subjected to the rates contained in the CET 2015- 2019 and 2015 Fiscal Measures without recourse to the rates applicable before the coming into effect of the ECOWAS CET 2015 – 2019.

Under the CET, five percent duty is applicable for 2,146 tariff lines under the basic raw materials and capital goods category; 10 percent for the 1,373 tariff lines that qualify as intermediate products category while 20 percent duty is reserved for the 2,165 tariff lines under final consumer products. Some 5,899-tariff lines are covered under the new tariff regime with the rate ranging from zero to 35 per cent for the 130 tariff lines that fall into the category of specific goods that contribute to the promotion of the region’s economic development.

Apart from being a major step towards economic integration in the sub region, strengthening its common market, the CET implementation is expected to create a uniform tariff system among member states thereby discouraging importers from diverting their cargoes to ports of neighbouring countries and consequently reducing the rate of smuggling in the country.

Of course, without a doubt, the implementation of the CET is a healthy development and a good step in the right direction by the government if well managed and not frustrated by Customs.

President, Shippers’ Association of Lagos State, Jonathan Nicol, said CET will help shippers project their sales margin and will help curb the excesses of customs officers.

Nicol is of the opinion that with the CET implementation in place, there is no way the tariff of the Nigeria Customs Service would be different to other customs services in the ECOWAS sub-region.

“I think the policy will control the excesses of the Nigerian Customs Service because there will be a common tariff in the ECOWAS sub region that they cannot influence. It is a good thing for Nigerian shippers; it is a very good innovation if it is well managed.”

“There is no way Nigeria Customs will give their own tariff anymore because there will be a common market. It will help shippers to make their plans, projections and sales margin unlike now that we can’t make projection and sales margin because you don’t know what you will meet at the port,” he said.

Of course, while Customs cannot influence the CET as duties payable on a particular item or commodity across the 16 member countries will be uniform, the difference in internal taxes of a particular member country may however be a challenge and a setback to the full realization of the CET objectives.

Due to government’s fiscal policies, there is already an inbuilt additional tax component along with the CET that importers will be subjected to pay on goods imported into the country.

For example, the tariff on vehicles under the CET; applicable to all member states is now 20 percent but the Federal Government has just imposed an additional 50 percent tax under the name Import Adjustment Tariff (IAT), indirectly reintroducing the initial proposed 35 percent levy and 35 percent duty on used vehicles which is expected to take effect July 1st 2015.

With this, the government has only ‘rechristened’ the levy to IAT and the import duty on vehicles whether new or used still stands at 70 per cent, a tax which other countries in the sub-region might not necessary impose.

While the inbuilt taxes are aimed at protecting the local industries, the inbound tariff, which will go along with the CET, may see importers paying higher than they were paying before. The implication of this is that the CET implementation may fuel smuggling and thereby jeopardize the businesses of local manufacturers, which it seeks to protect.

The truth is, importers of fully built vehicles will be in for a tough time as most of them are ignorant of this development and only time will tell if they will readily accept this new gimmick by the government or set for a showdown when they realize that the Federal Government is only insulting their intelligence by indirectly implementing the 70 percent duty on all imported vehicles, a policy which the agents had earlier resisted.

Factional President, National Council of Managing Directors of Licensed Customs Agent (NCMDLCA), Lucky Amiwero said the problem is that most of the importers do not really understand the CET and the customs officers who are to implement it have also not been well trained.

“The problem with the government is that most of these things are not communicated to the importers and this is where the country is lagging behind. Even the customs officers have not been trained on it,” he said.

The Nigeria Customs Service should therefore anticipate this resistance from importers and their agents when they finally understand the implications of the CET and its challenges.

Apart from the fact that most importers are ignorant on the workings of CET, challenges of infrastructural decay, high energy cost and insecurity in the country amongst a host of other factors must be properly addressed by the government if Nigeria is to benefit maximally from the CET regime. Otherwise it will only bring more harm than good to the economy.

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