New taxes, levies worsen economic hardship

•IMF predicts tougher economic outlook
By AYOOLA OLAOLUWA

The decision of the Federal Government to introduce more taxes and remove subsidies on several subsidized services in a bid to raise more revenue has begun to take heavy toll on Nigerians. This came as mixed reactions continued to trail government’s aggressive tax policies with some analysts warning it could be counter-productive.
It would be recalled that due to the drop in revenue brought about by the crash in the price of crude oil, President Muhammadu Buhari had on January 13, 2020, signed into law the Finance Bill 2019.
The new Act amended seven extant fiscal laws, namely the Customs and Excise Tariff Tax Act, the Petroleum Profit Tax Act, the Company Income Tax Act (CITA), the Personal Income Tax Act (PITA), the Value Added Tax (VAT) Act, the Stamp Duty Act and the Capital Gains Tax (CGT) Act in order to enhance their revenue generation potential for the country.
From February 2020, the Federal Government began giving impetus to its non-oil revenue generation drive spelt out in the new Act, by introducing several measures, including the implementation of the revised Value Added Tax (VAT) at 7.5 percent, cancellation of tax holidays and import waivers previously given to critical sectors like the power and health sectors, increase in import duties paid on imported equipment, as well as new tariffs on electricity consumption, removal of fuel and electricity subsidies, among many other initiatives.
According to Business Hallmark findings, while the aggressive revenue drive will help government reduce debts and budget deficits, as well as fund social services, the monthly inflation index had gone up owing to increase in prices of consumer goods. This development, it was gathered, has also contributed to the decline in the nation’s GDP growth rate as Nigerians continue to lower their consumption rate in the face of shrinking disposable income.
A one-week survey conducted by BH indicate that prices of several goods have gone up, while others will soon rise as the new price regime introduced by government becomes effective. For example, the collection of stamp duties on every financial transaction has impacted negatively on many individuals and businesses.
According to the policy, a stamp duty of N50 is paid on every transaction of N10,000 and above. While the amount seems small, several firms and individuals have complained that they were deducted between N3,000 and N25,000 daily, depending on the volume of business they do.
The owner of a popular supermarket in Ijaiye-Ojokoro who did not want her identity disclosed for personal reasons said that she records more than three hundred thousand sales a day, with over 70 percent of the sales above the N10,000 mark.
“That means I am charged N50 each for around 2,000 sales that passed through my bank account daily. Since we cannot continue to bear the cost what we know do is to pass it to any customer that purchase items of N10,000 and above”, she said.
More businesses are adopting the same approach by passing the cost to consumers. Many banks, it was gathered, have started implementing the deduction of stamp duty charges for onward remittance to the Federal Inland Revenue Service (FIRS).
A leading financial institution, Access Bank, was recently forced to reverse the deductions made on stamp duties for the months of March and April after a big uproar. The bank, while apologising to its customers, promised to reverse the deductions and bear the cost for the two months, and informed customers that proper deductions will start from May 2020.
While Nigerians are still grappling with the hardship brought about by the implementation of the stamp duty regime, the government decided to widen the net by adding Certificate of Occupancy (C of O), insurance policies, Guarantors form, memorandum of understanding and tenancy agreements to the taxable lists.
FIRS Director of Communications and Liaison Department, Mr. Abdullahi Ahmad, who made this known in a statement in Abuja, urged Nigerians and other residents to ensure that documents pertaining to rent or lease agreements for their homes or offices, C of O as well as a list of other common business-related transaction instruments are subjected to authentication with the new FIRS Adhesive Stamp duty.
He said this was necessary in order to give the instruments the force of law and make them legally binding on all parties involved in such transactions.
Ahmed quoted the Executive Chairman of FIRS, Mr. Muhammad Nami as saying “chargeable transactions under the Stamp Duties Act as amended in the Finance Act 2019 are in two categories – Fixed Duty Instruments and Ad-Valorem Instruments.
“The following are the chargeable transactions in the Fixed Duty Instruments category, Power of Attorney (PoA); Certificate of Occupancy (C of O), Proxy form; Appointment of Receiver, Memorandum of Understanding (MoU), Joint Venture Agreements (JVA), Guarantor’s form, and Ordinary Agreements Receipts.
“While ad-Valorem Instruments chargeable under the Stamp Duties Act are Deed of Assignment, Sales Agreement, Legal Mortgage or Debentures, Tenancy or Lease Agreement, Insurance Policies, Contract Agreements, Vending Agreement, Promissory Notes, Charter-Party and Contract Notes”.
The Secretary to the Government of the Federation (SGF), Boss Mustapha, recently disclosed that stamp duty collection could generate as high as N1 trillion annually, stating further that revenue from collections would only be second to crude oil earnings.
While explaining that the stamp duty collection which has been neglected for more than 20 years was activated by the current administration to widen the revenue base, he said the government needs to look inwards to use every available means to shore up its revenue-generating capacity in order to achieve meaningful development. Another levy that has pushed up the prices of goods is the newly introduced VAT rate of 7.5percent on all consumed goods.
A survey conducted by our Correspondent revealed that many firms and traders have increased the prices of their products in obedience to the new rate. On June 1, 2020, Multichoice Nigeria, owner of DStv and GOtv increased her prices to accommodate the implementation of the new VAT rate of 7.5% from 5%.
With the new levy, Premium subscribers on DStv now pay N16,200 against N15,800. This is an addition of N400. Compact Plus subscribers now pay N10,925 against N10,650. Similarly, Compact bouquet price has been adjusted from N6,800 to N6,975. Subscribers on Confam bouquet now pay N4,615 against N4,500 while Yanga subscribers pay N2,565 against N2,500.
On the other hand, subscribers on Max on GOtv now pay N3,280 from N3,200 while Jolli and Jinja subscribers now pay N2,460 and N1,640 respectively. MultiChoice explained that the increase in fees was in line with the legislation of the Federal Government which increased VAT in January 2020, with implementation effective 1 February 2020.
“In order to provide some relief for customers, MultiChoice Nigeria has absorbed the cost of increase in VAT for the past four months, keeping its products and services at the old 5% VAT, however this is no longer possible and the mandated 7.5% VAT will be applied accordingly,” the company stated.
While corporate firms have all began implementing the new VAT rate, checks revealed that many traders who did not know what VAT meant have increased the prices of food items. A visit to some of the markets showed that there was an increase in the prices of many products as traders claimed some companies now hide under the guise of VAT to increase prices of some items.
At the Agege Market, Lagos, consumable goods and household items like sugar, margarine, soaps, detergents, provisions, among others, recorded about 20 per cent increase in price.
For example, a 1kilogram pack of Dangote Granulated Sugar which sold for N350 in March is now N650. Similarly, one Derica cup of local rice sells from N300 and above while a 5litre keg of vegetable oil sold at N2,500 and above depending on the quality while the price of a bottle of groundnut oil was N450 and above.
Also, telecoms subscribers have started paying more for calls and data services. Findings revealed that the VAT increase now reflect on the charges of phone calls, text messages and data for internet.
Also affected is the stock market as investors and operators now pay more as transaction cost for shares traded on the Nigerian Stock Exchange. From February 1, 2020, the cost of transaction in the stock market increased as follows: Sell side- Stockbrokers fee 1.46 percent from 1.42 percent; NSE fee 0.33 percent from 0.32 percent; Central Securities Clearing System, CSCS and Trade Alert fee 0.39 percent from 0.38 percent.
On the Buy side: Securities and Exchange Commission (SEC) fee 0.33 percent from 0.32 percent; CSCS Trade Alert and VAT Alert fee 0.07 percent from 0.06 percent and Brokerage fee 1.46 percent from 1.42 percent. Overall, there is an increase of 0.12 percent for both the Buy and Sell side after the 2.5 percent
Electricity consumers have also started paying more as the cost of generating, transmitting and distributing electricity has gone up in recent times owing to several factors, leaving electricity producers with no other option than to pass it along to hapless Nigerians. For example, the Federal Government through the Nigerian Customs Service (NCS), increased the duty payable on imported pre-paid meters from 10% to 45%.
Due to the upward review of import duties previously paid on electricity meters by the government, the price of a single-phase meter is now N44,896.17, from the initial N36,991.50, while customers applying for a three-phase meter will be paying N82,855 instead of the previous rate of N67,055. The last minute intervention of the National Assembly gave Nigerian a temporary relief from the proposed electricity tariff hike which would have started on July 1.
Still grappling with challenges brought about by the hike in tariff rates and levies, Nigerians recently woke up to the announcement that the government has raised Passenger Service Charge for air travelers. With this development, air travel is expected to cost more with new Passenger Service Charge (PSC) increment from N1000 to N2000 for domestic flight operations and from $50 to $100 for international passengers.
Already, experts have argued that this will lead to an increase in air fare by airlines on both routes and make travel more difficult in the country at a time many people are finding it tough to travel by air. Explaining the reason for the increase, the government said the last review of PSC on domestic route from N350 to N1000 and from $35 to $50 on the international route was on May 1, 2011 and March 21, 2011.
Apart from these levies, the government is also mulling the idea of reintroducing toll gates on federal and states road as well as removing fuel subsidies, among several belt-tightening measures, forcing experts to voice concerns of imminent destabilization of the fragile socio-economic system. Alarmed, financial experts who spoke to BH warned that the government should prepare for social upheaval as cost of real investments will go up and more people enter into poverty.
In its warning to the Nigerian government, the International Monetary Fund (IMF) cautioned against implementing new tax measures in order to increase revenue. The IMF said now is not the time for countries to increase their tax push, but rather, initiate supportive policies that will help affected households and sectors impacted by the economic downturn caused by the COVID-19 pandemic.
The Director of the IMF Africa Department, Abebe Aemro Selassie, while giving this advice, said policies needed now are those that will confront the financial burden of businesses, as most have recorded a significant loss to COVID-19 pandemic and the measures adopted to curb further spread of the coronavirus.
“Nigeria is an oil-exporting country so the impact of the pandemic is being compounded by the sharp decline in oil prices. We are projecting that GDP growth would contract around 5.4 percent this year so it’s a very significant hit to incomes. It will be very important to have very nimble policy response to ensure that the hits to the economy are not compounded by policy challenges.
“This is not the time to be aggressively introducing new tax measures but there is a long-standing challenge, on the fiscal side, of needing to have sufficient resources generated by the government from non-oil sources to provide investments in health, education, infrastructure so there is that long-term agenda that needs to be addressed. Right now, fiscal policy can be supportive and needs to be supportive”, Selassie argued.
Also, human rights lawyer, Prof. Chidi Odinkalu, also faulted the federal government for raising charges on a variety of services while ordering private operators not to do the same. In a tweet read by BH,, the former chairman of the National Human Rights Commission (NHRC) said that it is wrong for the federal government to direct business operators not to increase prices of goods and services despite an increase in value added tax (VAT).
“Increased VAT, increased electricity tariff, increased petrol price, charges on POS, charges on ATM withdrawals, but private operators can’t adjust their prices under the watch of a government that keeps raising charges,” the tweet read.
Speaking on the fiscal steps by the government and implications for revenue growth, a tax consultant and seasoned tax administrator, Mr. Mark Dike, noted that tax administration could be likened to chicken and egg relationship.
“It is sad that over the years, millions of ordinary taxpayers have not been enjoying the benefits of tax compliance while the so called wealthy Nigerians avoid taxes and yet enjoy all the benefits associated with tax payment”.
Dike, a former President of the Chartered Institute of Taxation (CITN), who recalled the various policy measures undertaken by successive administrations to raise revenue through taxation, lamented that with just a little over 200 billionaires paying taxes while several thousand others default, the preponderance of generated revenue from taxes was being used to finance the wealthy in the society without taking care of the basic needs of the citizenry.
“There is no gainsaying the fact that taxes, especially non-oil taxes, are key to Nigeria’s sustainable development. It is like the chicken and egg story. Without taxes, there can be no development. But the problem we have is, those who pay taxes don’t enjoy the benefits here. What you have is a situation where the wealthy, or what I call ‘flight by night wealthy people” that don’t pay taxes are the ones enjoying the benefits through contract awards and patronages in one form or the other that are not adding value to the economy.
“We have amended the various tax laws and applicable tax rates on personal income and those of enterprises, yet the effects of such measures are being hardly felt today. So, if government wants to be fair to taxpayers it should ensure that additional revenues being raked in from these taxes are committed to projects that will bear directly on the well-being of ordinary Nigerians”, Dike maintained.
Also speaking, the immediate past chairman, the Nigerian Association of Small and Medium Entrepreneurs (NASME), Lagos Chapter, Mr. Solomon Aderoju, said that though SMEs with less than N25 million annual turnover threshold were exempted from VAT payment, they will still be affected indirectly, as some of their major raw materials may be sourced from big suppliers who are subjected to payment of new VAT rate.
According to him, the only way out for SMEs is to source their raw materials and other input from other similar SMEs, which may not be possible at all times. Aderoju stressed that doubtlessly, the increase in all taxes will have negative effect on the economy. There will be increase in the cost of production, rate of inflation, among others.
“As part of fiscal measures to mitigate the effect of tax burden on SMEs nationwide, government should resolve the issue of infrastructure deficit, improve the ease of doing business, create new industrial and capacity building skills development centres and promote the marketability of locally produced goods.”