In this report, JOSEPH INOKOTONG expatiates on President Bola Ahmed Tinubu’s announced economic policies; impacts on the economy and the people.
President Bola Ahmed Tinubu has, since his assumption of office, enunciated wide-ranging policies in fidelity to the pledge he made to put Nigerians at the centre of government policies and address business unfriendly fiscal and monetary policies, especially multiplicity of taxes. Nobody is in doubt of the president’s preference for market driven economy, especially the growing quest to maximise revenue growth for developmental purposes.
Much seem to have been accomplished within a short time in office in terms of reforms, however, what remains conspicuously missing are measures with a direct impact on the populace to significantly ameliorate the consequences of the fuel subsidy removal, which should include the immediate roll-out of palliatives as promised by the government.
The president has not left anyone in doubt of the direction of his administration’s economic policy, which revolves on lifting impediments to a friendly business climate, revenue generation, elimination of multiple taxation, monetary policy reforms, ease of doing business, growth of the economy that would engender shared prosperity amongst the populace, etc.
Consequently, on his first day in office, just a few minutes after being sworn in as President, Tinubu, swiftly revisited the vexed issue of subsidy and announced its removal from Premium Motor Spirit (PMS), popularly called petrol. This did not go down with many people due to obvious reasons.
The effects of the announcement on the economy and the people were spontaneous. As anticipated, immediately, the petroleum products marketers adjusted the pump price of petrol upwards to N540 per litre. Motorists across the country were caught napping as those that could not afford to pay for the new prices park their vehicles. Commuters who were also caught off-guard of the price increase were left with fewer choices of either trekking distances or paying through their noses. In the midst of all this, the masses continue to bear the brunt and move on stoically.
President Tinubu had said, “Subsidy can no longer justify its ever-increasing costs in the wake of drying resources. We shall instead re-channel the funds into better investment in public infrastructure, education, healthcare and jobs that will materially improve the lives of millions.”
Nigerians are still waiting anxiously for the promise to be fulfilled.
All along, the petrol subsidy removal has been anticipated to cause a temporary increase in inflation in the upcoming months before contributing to disinflation in the medium term. Also, experts say the price increases resulting from the subsidy removal will impact on prices, primarily affecting petrol purchases for transportation, power generation and other services.
To limit the risk of so-called second-round effects, where one-off price increases trigger more generalised inflation including through wage-price spirals, the Nigeria Development Update (NDU) suggests that it will be important to adopt macro-fiscal policy settings that are conducive to price stability.
The NDU report released recently points the way forward by stating that “Compensating transfers will be essential in helping to shield Nigerian households from the initial price impacts of the subsidy reform. Without compensation, many households could be pushed into poverty by higher petrol prices and forced to resort to coping mechanisms with long-term adverse consequences, such as not sending children to school, or not going to health facilities to seek preventative healthcare”.
In addition to providing immediate cash compensation, the report stated that the “Government could also elaborate on the use of the freed-up resources in a new compact with the Nigerian people, outlining support in the immediate as well as medium and long term, at the federal, state, and local government levels. The recent proposal to implement a set of measures to alleviate the impact of the subsidy removal, led by the National Economic Council, should clearly identify priority areas for government investment and effectively communicate these to the public to garner support. A public commitment to identifying development (including infrastructure) spending priorities, pro-poor service delivery, and a role for social protection programmes to help households cope with shocks could guide such a compact. The compact should also be anchored in a clear commitment to fiscal realism, as a large expansion in spending could have fiscal implications, potentially leading to increased fiscal deficits over the medium-term”.
In his quest to remodel the economy to bring about growth and development through job creation, food security and an end to extreme poverty, President Tinubu has charted a course of action targeted at achieving a higher GDP growth, which would in turn enhance significant reduction in unemployment.
This, the President intends to accomplish by budgetary reform to stimulate the economy without engendering inflation, and industrial policy to utilise the full range of fiscal measures to promote domestic manufacturing and lessen import dependency.
Perhaps, Thursday’s announcement of presidential interventions to address key concerns of manufacturers and other stakeholders regarding some recent tax changes could be interpreted to make for efforts to redeem his pledge to put the economy in a sound footprint.
Special Adviser to the President on Special Duties, Communication and Strategy, Mr Dele Alake, while briefing State House reporters at the Presidential Villa, Abuja, disclosed that President Tinubu signed four Executive Orders “in fidelity to the pledge to put Nigerians at the centre of government policies and address business unfriendly fiscal policy measures and multiplicity of taxes”.
The first executive order, Mr Alake said is the Finance Act (Effective Date Variation) Order, 2023, which has now deferred the commencement date of the changes contained in the Act from May 23, 2023, to September 1, 2023, to ensure adherence to the 90 days minimum advance notice for tax changes as contained in the 2017 National Tax Policy. “The second one is The Customs, Excise Tariff (Variation) Amendment Order, 2023 which has also shifted the commencement date of the tax changes from March 27, 2023, to August 1, 2023 and also in line with the National Tax Policy. Thirdly, the President had given an Order suspending the 5% Excise Tax on telecommunication services as well as the Excise Duties escalation on locally manufactured products. The President had also ordered the suspension of the newly introduced Green Tax by way of Excise Tax on Single-Use Plastics, including plastic containers and bottles, and the suspension of the Import Tax Adjustment levy on certain vehicles.
Prior to this, President Tinubu had assented to the bill which empowers the sub-nationals to generate their electricity in order to become more accessible and affordable to businesses and homes alike, a move intended to make power generation nearly double and improve the transmission and distribution networks. States are encouraged to develop their local sources as well.
The administration has also touched on the monetary policy reforms, which led to the Central Bank Bank (CBN) discarding the multiple foreign exchange FX rates it had hitherto maintained in favour of a unified exchange rate. The aim is to divert funds from arbitrage into meaningful investment in the plant, equipment and jobs that power the real economy. This is in addition to allowing the redesigned Naira and the old denominations to run both as legal tenders.
However, interest rates have not been reduced as intended in order to increase investment and consumer purchasing power in ways that sustain the economy at a higher level; rather, the economy is witnessing a spike in inflation rate with that May 2023 standing at 22.41 percent.
Uchenna Uwaleke, Professor of Finance and Capital market at Nasarawa State University said in his reaction: “The recently signed Executive Orders represent a welcome development as they will no doubt enhance the business environment and consequently improve the country’s ranking in the Ease of Doing Business.
“The suspension of the proposed import tax adjustment levy on certain vehicles and the Excise tax on telecommunications and other locally manufactured products will help to moderate the rising inflation and increase productivity.
“Also, the Finance Act Variation Order 2023 is equally in order to enable taxpayers to adjust to the new provisions in line with the National Tax Policy.
“Much as these developments will help moderate the rising inflation, more measures with direct impact on the population need to be put in place in order to significantly ameliorate the adverse consequences of the fuel subsidy removal. These should include the immediate rollout of palliatives promised by the government.”
Experts are unanimous in their views that the various economic policies of President Tinubu are critical steps to address long-standing macroeconomic imbalances and have the potential to establish a solid foundation for sustainable and inclusive growth. They affirmed that Nigeria can seize this window of opportunity to further implement a comprehensive reform that encompasses a range of complementary fiscal, monetary, trade, and structural policy measures to maximise on growth, job creation, and poverty reduction.
The Federal Government’s recent introduction of a yearly vehicle ownership verification fee of N1,000 for all categories of motorists across the country is another economic policy of the administration that does not go down well with some Nigerians. But the government insists that the fee known as the Proof of Ownership Certificate (POC), aims at tracking the real-time status and integrity of all vehicles registered on the National Vehicle and Identification Scheme (NVIS) database.
Last week’s approval by the president of the establishment of a Presidential Committee on Fiscal Policy and Tax Reforms to remove all barriers impeding business growth in Nigeria may help resolve the issue of multiple taxation, especially those with a stranglehold on Nigerians like the N1,000 annual renewal fees for vehicles proof of ownership.
The committee, which will be chaired by Fiscal Policy Partner and Africa Tax Leader at Price Waterhouse Coopers (PwC), Mr Taiwo Oyedele, will comprise experts from both the private and public sectors and who will have responsibility for the various aspects of tax law reform, fiscal policy design and coordination, harmonisation of taxes, and revenue administration.
It is consoling to note that Mr. Adelabu Zacch Adedeji, Special Adviser to the President on Revenue explained that President Tinubu recognises the importance of a sound fiscal policy environment and an effective taxation system for the functioning of government and economy.
According to him, ‘’Nigeria ranks very low on the global ease of paying taxes while the country’s Tax to GDP ratio is one of the lowest in the world and well below the African average. This has led to an overreliance on borrowing to finance public spending which in turn limits the fiscal space as debt service costs consume a greater portion of government revenue annually resulting in a vicious cycle of inadequate funding for socio-economic development. While some incremental progress has been recorded over the years, the outcomes have not been transformative enough to change the narrative.”
More heartwarming is Adedeji’s acknowledgement of the key challenges in Nigeria’s tax system, which includes multiple taxes and revenue collection agencies, fragmented and complex tax system, low tax morale, high prevalence of tax evasion, high cost of revenue administration, lack of coordination between fiscal and economic policies, and poor accountability in the utilisation of tax revenue.
The SA on Revenue further explained ‘’Our aim is to transform the tax system to support sustainable development and achieve a minimum of 18 percent Tax to GDP ratio within the next three years without stifling investment or economic growth. It should be noted that this committee will not only advise the government on necessary reforms but will also drive the implementation of such recommendations in support of the comprehensive fiscal policy and tax reform agenda of the current administration”.
As laudable as the policy may be, efforts should be made at ensuring that it addresses the challenges it was established to tackle, in order to bring about transformative reforms in fiscal policy and taxation. The committee should focus on its primary objective to enhance revenue collection efficiency, ensure transparent reporting and promote the effective utilisation of tax and other revenues to boost citizens’ tax morale, foster a healthy tax culture and drive voluntary compliance, as these efforts will not only improve Nigeria’s revenue profile but also create a more conducive and internationally-competitive business environment.
President Tinubu’s economic policies that have been unveiled so far have received commendations from experts, just as they have given suggestions on the way forward. However, Nigerians are waiting and hoping to witness the much-expected economic turn-around that would herald an improved standard of living for all and inclusive growth.
The government should not stop at giving requisite stimulus by way of friendly policies to allow businesses to flourish in the country; it must not only issue orders to ameliorate the negative impacts of the tax adjustments on businesses, but it should also equally evolve policies to unshackle the chokehold on households across affected sectors, and not exacerbate the plight of Nigerians.
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