CPPE Commends President Bola Tinubu for executive orders; kicks against the taxation of the informal sector

In an official statement issued to the press, the Centre for the Promotion of Private Enterprise led by its Chief Executive Officer and Director, Dr. Muda Yusuf commended President Bola Ahmed Tinubu for his recent signing of some executive orders.

The executive orders included:

·       Suspension of the Excise duty escalation contained in the 2023 Fiscal Policy Measures imposed by the previous administration.

·       Suspension of the Green Tax on some categories of vehicles.

·       The deferment of the Finance Act 2023 effective date and some customs tariffs.  This was to ensure compliance with the mandatory 90 days’ notice prescribed in the National Tax Policy as well as ensure reasonable notice for customs tariff reviews.

The CPPE commended the move as it normalized policy implementation processes consistent with the national tax policy and best practice principles.

It went on to posit: The executive orders also demonstrate the sensitivity of the Tinubu administration to the predicament of the manufacturing sector amid overwhelming headwinds and hassles to real sector activities in the Nigerian economy.    The Manufacturing sector is a troubled part of the economy.  The sector’s growth slowed to 1.6% in the first quarter of 2023, from 2.8% in the fourth quarter of 2022 having contracted by 1.9% in the third quarter of 2022.  It barely contributes 10% to the Gross Domestic Product [GDP] in the first quarter of 2023. The sector is grappling with the following, among others:

·       Challenges of depreciation in the exchange rate which is impacting adversely on the cost of production, a situation which is severely inhibiting production and productivity in the sector.

·       Intense pressure on cost of production arising from numerous structural bottlenecks. This situation is creating sustainability challenges for investors in the sector, especially those in the SME segment. They have experienced significant spikes in the cost of raw materials, cost of fund, high import duty, elevated energy cost, prohibitive cost of transportation and high cost of logistics. A huge proportion of these costs cannot be passed on to the consumers because of high consumer resistance.

·       The economy is currently characterised by weak purchasing power amid intense inflationary pressures and recent fuel subsidy removal.  Disposable income has been considerably diminished.  This is taking a huge toll on sales and turnover of many manufacturers.

·       Many manufacturers are currently struggling with unfair competition, especially from products imported from Asia which have flooded the Nigerian market, largely because of the porosity of the borders. These imports are often much cheaper than goods produced locally.

·       Energy costs remain high. Though the cost of diesel dropped slightly in the last month, still remains high at about N700 per litre. The cost of gas is also prohibitive just as in electricity tariffs remain exorbitant.  

·       The cost of logistics has continued to be on the upward trend. Some of the reasons for this are the roads' states, the railway system's limited freight capacity, the crisis situation at our major ports, the traffic gridlock around the Lagos ports, the numerous checkpoints around the ports and beyond.

It went on to enumerate the extra benefits which will be enjoyed by both the investors and citizens when it said:

“Recent reforms, especially the fuel subsidy removal and the adoption of a market reflective exchange rate regime, have significant fiscal consolidation outcomes. This is very positive for the economy.  It would create ample fiscal space, reduce fiscal deficit, enhance social spending prospects to protect vulnerable segments, and facilitate the stability of the macroeconomic environment.  The good news is that all the three tiers of government would be beneficiaries of the increase in revenue - federal, state, and local governments”. 

The release criticized the decision of the Federal Inland Revenue Service to collect taxes on behalf of the Federal Government for the informal sector for the following reasons:

·       The economics of collection does not support the move.  The cost of collection would be much more than the amount that could be collected.

·       Over 98% of the informal sector traders are microenterprises who do not fall within the threshold of entities that are liable for VAT payment.

·       The informal sector associations are highly fragmented. It would be impractical to develop a partnership framework with the market associations for the collection as contemplated by the FIRS.

·       Most informal sector operators have not recovered from the shocks of the fuel subsidy removal and the associated inflationary impact.

·       Most informal sector operators have no records which could be used for purposes of assessment. There is therefore a high risk of arbitrary assessment.

·       The literacy level of the operators in the sector is very low which would create communication issues.

·       The political cost to the government will be very high.

·       Most informal sectors are already paying all manner of levies to local governments, and several non-state actors.  The government need not burden them with additional taxes.

The release was rounded off with advice for the FIRS to be more innovative with its collection of taxes in the informal sector by adopting cheaper ways, low political costs, and minuscule disruption.

Given the local peculiarity of our local economy bedeviled by a high level of inequality, it advised the revenue collection agency to focus its efforts on the few individuals and corporate bodies that could give it the highest yield to reduce the tension in the already highly troubled land.