By AYOOLA OLAOLUWA
The aggressive push by the Federal Government to raise additional revenue to meet growing expenditure demands is causing a massive disruption in the power sector, Business Hallmark findings can reveal.
It would be recalled that owing 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 equipments, as well as new tariffs on electricity consumption, among many other initiatives.
However, while the move is expected to significantly raise government revenue derived from the non-oil sector, its implementation has started presenting several challenges, particularly in the power sector, with financial experts warning that any aggressive pursuit of revenue without taking into consideration the macroeconomic constraints facing businesses and consumers will invariably hurt the economy.
BH findings revealed that one of the sectors reeling from the negative impact of the aggressive push for more income is the power sector. According to findings, 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 happles 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 from 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.
Speaking on the development, electricity distribution companies under the aegis of Association of Nigerian Electricity Distributors (ANED), blamed it on high import duty for meters, and other hurdles, which they noted are slowing the 2021 metering target of the Meter Asset Providers, MAP, regulation.
ANED called on the Federal Government to intervene in finding a means to cut the duty on imported meters, to enable faster metering for the DISCOs’ customers towards ending the estimated billing regime.
The Executive Director, Research and Advocacy at ANED, Barrister Sunday Oduntan, who spoke for the association said some of the MAP companies have the capacity to install about 3,000 meters per day for the DISCOs if the meters are available
“These are separate companies but DISCOs support Meter Assets Providers, MAP, and we want them to succeed.
“There should be zero percent import duty on meters. We must assist local meter manufacturers to bring in components duty-free until Ajaokuta Steel Company is ready. The high import duty at the ports is killing the power sector.
“When customers are metered, they would be happy. Estimated billing is not good for the DISCOs revenue collection drive.
“While those importing meters are finding it hard because of the import duty, the local meter manufacturers are also finding it difficult to continue production because they have to pay import duty on at least seven different components which they import for use in producing the meters in Nigeria.”
The discos said the power firms cannot be blamed for the current slow process of providing meters for their customers as that role was alienated to the MAP companies since the Nigerian Electricity Regulatory Commission, (NERC) implemented the MAP regulation in 2019 and gave permits to metering firms to provide and install the meters for DISCOs.
ANED also said with the current import duty and other challenges befalling the implementation of MAP, the NERC order that DISCOs should provide meters for all electricity consumers by 2021 may not be realistic.
“On the part of the Federal Government, what has it done to ensure that the meters are available for them to be installed for the customers of the DISCOs? There is an urgent need for the government to intervene so that there will be more meters available to be installed.”
Owing to rising costs and the urgent need to recoup investments, distribution firms have concluded plans to increase the cost of electricity from July 1, 2020. From that date electricity consumers will pay more for the product, five months after the planned hike was suspended by the government.
In other to prepare their customers for the increment, the electricity distribution companies had already writing to them.
According to a statement by Ikeja Electric Plc, the firm will implement the revised electricity tariff from Wednesday, July 1, 2020. A statement from the leading electricity distribution company obtained by BH stated that the new tariffs will enable all the market players (generation, transmission, distribution and gas suppliers) in the Nigeria electricity supply industry cover cost of their operations and ensure improved service delivery.
It explained that henceforth, energy customers will now be categorised into maximum demand customers (MD) and non-maximum demand (non-MD) customers, and no longer the usual residential, commercial and industrial customer classes.
“All customers have now been clustered into different bands depending on the level of service currently being enjoyed,” the firm stated.
“The plan is for the sector to gradually make a transition to a full cost-recovery market where the cost of services provided will be fully recovered.
“Services are also expected to improve within a very short time in customer service delivery, infrastructural upgrade, metering and technological solutions based on the level of investments that will be attracted, going forward,” Ikeja Electric explained.
Also, the Enugu Electricity Distribution Company (EEDC) also forewarned its numerous customers of an imminent price increment.
“Following the directive of the Nigerian Electrical Regulatory Commission (NERC), with the approval of the Federal Government, on the planned electricity tariff review which will take effect on July 1, 2020, the Enugu Electricity Distribution Company (EEDC) wishes to notify her esteemed customers of this development,” said a notice from EEDC.
“The Nigerian Electricity Regulatory Commission (NERC) last year approved an average of 30 percent increase in electricity price bands exempting customers who with very limited consumption” it said.
EEDC further explained that the tariff review is necessary since the government cannot fund its subsidy any longer.
Checks indicate that other discos have also informed their customers of the impending hike in tariffs.
Apart from tariff hike, the discos had in February began the implementation of the 7.5 percent VAT regime. Many customers who before receive 44kwh units of electricity with just N1000, not get 38 units for the same value.
In the same vein, the cost of purchasing electricity equipment such as transformers, feeders, insulators, changeovers, among many others have gone up astronomically.
A resident of Bode Atanpaku in Ijaiye-Ojokoro area of Lagos told our correspondent that the community had to cough out the sum of N8million to buy a new 500kva transformer, after waiting endlessly for Ikeja Electric to replace the spoilt transformer they installed ten years ago.
“Our transformer packed up si months ago, and up till now, IE has not shown up to fix or replace it. When we complained, they complained of paucity of funds. When we could no longer wait, each house using the old transformer was taxed N20,000 each. That was how we were able to raise the N9.3 million we used to buy the transformer, including installation cost.
“The saddest part of it is that we bought the same transformer for a street within the same CDA for N4.3million less than two years ago”, the resident lamented.
Many residents, it was gathered, now team up to contribute the needed funds to repair their faulty electrical equipments, or wait endlessly for cash-strapped electricity firms to raise the required funds to repair the fault.
Meanwhile, financial experts have warned the Federal Government that its revenue at all cost drive will hurt economy.
Speaking m 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.”