Opinions

Of controversial tax reform bill and Nigeria’s automotive industry

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5 months ago

SINCE the inauguration of the 10th assembly on 13 June 2023, an estimated 500 bills have been initiated, 53 of which have been passed. Some of these bills were met with decorum by Nigerians, while some – like the Regional Government Bill, the National Ranches Commission Establishment Bill 2024, and the six-year Single-term presidency/rotational presidency, have stirred concerns across the country. The latest of these controversial bills is the Tax Reform Bill. This proposed tax reform bill aims to reform the Nigerian tax system while introducing a new sharing formula for tax revenue generated by states. Simply put, it means that states will mostly receive a share of tax revenue based on the amount of tax they generate, rather than the current system where revenue is shared based on an uneven formula. However, since every economic policy has a direct or indirect effect on every sectors or industries, the potential impacts of this bill in the automotive industry propelled this piece.

According to the Nigerian Bureau of Statistics (NBS), the Nigerian automotive industry contributed approximately ₦444.4 billion (around $1.2 billion USD) to Nigeria’s GDP in 2020. The industry also employs thousands of people directly and indirectly, making it a significant sector of the Nigerian economy. The National Automotive Council also echoes the significance of the Nigerian automotive industry when it states that the industry had the potential to create over 700,000 jobs by 2025, if the right policies and incentives are put in place. The question that thus begs for answer is whether the tax reform bill is a right policy that would enhance the Nigerian economy through the automotive industry.

Well, as there are always two sides to every coin; the tax reform bill will be of both positive and negative impacts on the Nigerian automotive industry. On the positive outlook, the bill’s proposal to reduce Company Income Tax (CIT) rates for large companies could benefit car manufacturers and assemblers in Nigeria. This reduction in CIT rates could lead to increased investment in the automotive sector, creating jobs and stimulating economic growth. On the other hand, the bill’s proposal to reduce Company Income Tax (CIT) rates for large companies from 30% to 27.5% in 2025 and 25% in 2026 could benefit car manufacturers and assemblers in Nigeria. According to a report by PwC Nigeria, the reduction in CIT rates could also lead to an estimated ₦120 billion (around $310 million USD) in tax savings for the industry annually.

The bill also provides incentives for private sector employers, including tax relief for wage awards and transport subsidies offered to employees. This could benefit car manufacturers and dealerships that provide transportation benefits to their employees. The bill’s provisions could lead to increased investment in the automotive sector, creating jobs and stimulating economic growth. On the negative side, however, for newbie auto dealers, the new tax reform bill could lead to increased costs for car manufacturers and importers. With the proposed increase in Value-Added Tax (VAT) rates, car prices could rise, making them less competitive in the market.

According to a report by the Automotive Manufacturers Association of Nigeria, the increase in VAT rates could result in an additional ₦150 billion (around $390 million USD) in taxes paid by the industry annually

Worthy to add is that the bill’s provision for higher taxes on luxury goods, including cars, could further increase the financial burden on car owners and manufacturers. For instance, the proposed 15% luxury tax on cars valued above ₦20 million (around $52,000 USD) could lead to a significant increase in car prices. To surmise, the proposed tax reform bill in Nigeria has both positive and negative implications for the car industry. While it may lead to increased costs and taxes for car manufacturers and importers, it also provides incentives for investment and job creation in the sector.