Imported vehicles in Nigeria
Imported vehicles

BY EMEKA EJERE

The Director-General of Lagos Chamber of Commerce and Industry, Dr. Muda Yusuf, yesterday lent his voice to the argument trailing the proposed policy in the 2020 Finance Bill that seeks to slash duties and levies on imported vehicles, saying it is a step in the right direction.
Since November last year, the proposal has been raising conflict of opinions among investors. While some argue it will stifle local automobile industry and worsen unemployment crisis, others hail the idea, saying it will boost the economy.
The federal government had inadvertently sparked the controversy as it tried to push the policy by explaining that it was meant to cushion harsh socio-economic situation in the country.
The Federal Executive Council {FEC} had as contained n the draft 2020 Finance Bill, approved the reduction in duties on tractors from 35 to 10 per cent; vehicles for transportation of goods from 35 to 10 per cent and 35 to five per cent on vehicles for transportation of persons (cars).
Vice President Yemi Osinbajo had at the opening plenary of the 26th Nigeria Economic Summit (NES#26) explained that the decision to slash duty on imported vehicles was not to kill the nation’s automobile manufacturing industry, but to reduce the cost of transportation in the face of growing economic challenges.
The Vice President also argued that with an annual demand of about 720,000 vehicles, as against 14,000 local production, the national need would not be met if vehicles were not imported.
The new policy, he maintained, does not mean that the government has jettisoned its commitment to boosting local production. Minister of Finance, Budget, and National Planning, Mr. Zainab Ahmed, had also told journalists that the reduction in import duties and levies would lead to reduction in transportation cost.
“The reason for us is to reduce the cost of transportation which is a major driver of inflation, especially food production,” she had explained.
The Director-General, National Automotive Design and Development Council, Jelani Aliyu, had last year hinted that about nine automotive manufacturing companies were assembling vehicles in Nigeria and listed them listed the companies to include: Peugeot Automobile Nigeria, Nissan Motors, Honda Motors, Innoson Vehicle Manufacturing Company, Hyundai Motor Company, Ford Motor Company, GIC Motor Companies Ltd, JAC Motors and Kia Motors. A number of companies equally assemble trucks, including Dangote, while Bua had recently indicated interest in the industry.
Before Nigeria shut its borders that were recently reopened, there had been outcry against the increasing rate of smuggled vehicles into the country due to the high import levy and tariff. Comptroller-General of the Nigeria Customs Service, Hameed Ali, had at some point noted that the 35 per cent levy discouraged importers and created opportunities for neighbouring countries.
Although some operators in the Nigerian automotive industry and experts have raised concerns about amendments to some aspects of the policy, especially as it relates to levies, some members of the organised private sector believe the decision may spur growth and competition.
Stakeholders believe that with the beginning of the implementation of the African Continental Free Trade Area (AfCFTA) Agreement since January 1, 2021, it has become imperative for the country to streamline its tariff lines, in compliance with the protocol.
The rise in duty and depreciation in value of naira drove prices of new cars far above the purchasing power of the fast diminishing middle-income earners. Automobile dealers have also lamented of a sharp decline in sales volume due to higher landing cost of imported vehicles, which has been further amplified by higher tariffs.
The federal government had In November 2013 announced the introduction of a new automotive policy, which was geared towards discouraging the importation of wholly assembled automobiles and encouraging local manufacturing.
The policy allows local assembly plants to import completely-knocked-down vehicles at zero per cent duty, and semi-knocked-down vehicles at 5 per cent duty, while importers pay a 70 per cent duty on new and previously-owned vehicles. The main thrust of the policy was to encourage local car production/assembly plants while cutting importation through raising import duties.
However, seven years down the line, the policy has failed to achieve the desired outcomes, as Nigeria’s domestic vehicle production capacity remains under-utilised. This has continued to have very heavy consequences on the economy, thereby prompting the proposed slash in duties.
Commenting on the proposed duty cut, Dr. Yusuf noted that the present tariff regime is not only making vehicles unaffordable, thereby causing high cost of transportation, but it is also making smugglers to take over the automobile sales business, leaving the legitimate dealers disadvantaged.
Yusuf, who was speaking on the Early Rush Show, a STAR FM breakfast show monitored by our correspondent said rather than go back on the proposed slash on tariff, government should encourage those who have invested in vehicle assembly by reducing the import duties of their raw materials, reducing other forms of taxes for them among other things, insisting that the interests of both the citizens and investors matter in economic policies.
“You see, in economic policy process, the interest of the citizens matters; the interest of investors also matters. There has to be a good balance.
“A situation where we’re imposing a tariff of 70 percent on vehicles, that’s outrageous. Because what has been happening now, especially for new cars is that you pay 35 percent levy, you pay 35 percent duty. So, you’re bringing a car of about $100, 000, you have to pay that plus $70, 000. It is too much.
“Now the government is saying reduce the levy component to 5 percent, and the duty component which is 35 percent is still there. So 35 plus 5, that is still 40 percent. Is that not fair enough to protect any industry?
“If you impose a tariff of 40 per cent to protect an industry and that industry did not survive, then there must be something wrong with the industry.
“We have to be careful not to unduly penalize the citizens in the process of automobile. Look at how costly cars are. Is it a crime to ride a car?
“There was a time in this country, with N10, 000, N8, 000, N5, 000 you can buy a brand new car. And we’re not talking about a very long time ago. We’re talking about in the early 80s, in the mid 80s – before SAP.
“So what has now become of our country that to now buy Tokumbo cars you have to spend N5m, N10m and all those amounts? Brand new car are now going for N20m, N25, N30 million and so on. How many people can afford that?
“And yet you tell me you have high cost of transportation. Look at all the rickety vehicles on the roads. Look at all the buses around the cities, putting people at risk, because people keep managing and managing. So I don’t think it’s a bad idea. There has to be a balance between the interest of those who are investing and the welfare of the citizens.
“And whatever whether incentive government can give to those who have invested in the assembly, government should give them incentives. But not to now go and put a punitive tariff. That tariff of 70 percent is punitive.
“And apart from that it is creating a serious problem of smuggling, such that those who are doing legitimate business and are paying that 70 percent are losing out. And the smugglers have taken over the business. It’s not a very good policy..
“So I am of the view that government should look at those who have invested, if there are other things we can do for them, like reducing the import duty of their raw materials, tax cut and so on.”
Fairly use automobile dealers visited by our correspondent said the policy will be a big relief to them if only those with vested interest will allow it to see the light of the day.
“We are waiting to see the implementation. I will be a very good thing if those who see it as a threat to their business interest allow it to happen”, Dominic Peters, a car dealer in Ikeja told Business Hallmark.
Commercial motorists and members of the public are not left out in the feelings that a huge reprieve may be around the corner if only government is ready to match words with action,
However, chairman of Innoson Vehicle Manufacturing Company Limited (IVM), Chief Innocent Chukwuma, had said the proposed policy would be a disincentive to investments, in addition to setting Nigeria’s automotive industry back by at least 10 years. Describing it as a shocking decision by the federal government, Chukwuma had lamented that it would lead to the forced closure of many auto plants.