Nigeria plans new increase in taxes & tariffs by mid-2022

Nigeria is considering a significant increase in taxes and the introduction of new taxes and tariffs on specific businesses and individuals by mid-2022. This move comes in response to calls from multilateral institutions such as the World Bank and the International Monetary Fund for the Nigerian government to levy special taxes on items like alcohol, cigarettes, and sugar-sweetened beverages. Paul Alaje, Senior Economist at SPM Professionals, joined CNBC Africa to discuss the potential implications of these proposed changes. Alaje expressed concerns over the impact of these tax adjustments on the already struggling Nigerian economy. He pointed out that while the government needs to boost revenue, imposing taxes on sensitive consumer products like sugar could have adverse effects on the population. Alaje emphasized the importance of expanding the tax base by bringing more individuals into the tax bracket instead of burdening existing taxpayers with higher rates. He urged the government to adopt innovative methods to increase revenue rather than resorting to blanket tax hikes. The discussion also touched on the rationale behind targeting specific goods such as alcohol and cigarettes for additional taxation. Alaje underscored the need to evaluate the economic contributions of these commodities before considering the health implications. He suggested that if these products generate significant revenue, a moderate tax increase could be justified. However, he cautioned against indiscriminate tax hikes, especially on items that could have broader socio-economic repercussions. Looking ahead to 2022, experts predict that the Nigerian government will face challenges in generating additional revenue amidst ongoing economic pressures such as debt servicing obligations and the need to remove subsidies. Alaje highlighted the potential risks associated with subsidy removal and emphasized the importance of aligning supply with demand in the energy sector to prevent price shocks. He also raised concerns about the government's plan to provide financial assistance to 40 million impoverished individuals, citing logistical challenges in identifying recipients and ensuring effective distribution. Alaje proposed redirecting the allocated funds towards infrastructure development projects, such as modular refineries, to stimulate job creation and reduce reliance on costly fuel imports. He criticized the inefficiencies of state-owned refineries and called for privatization to enhance operational efficiency. Alaje warned that failing to address structural issues in the energy sector could further strain Nigeria's economy and exacerbate inflation and unemployment rates. He urged policymakers to prioritize revenue generation through sustainable means and avoid short-term measures that could destabilize the economy. The interview highlighted the delicate balance between fiscal reform and economic stability in Nigeria, underscoring the need for strategic long-term planning to navigate the country's complex financial landscape.