April 8, 2022/CSL Research

Following speculations of a review of the tariff on imported used vehicles from 35 to 20%, the Nigeria Customs Service has said that there are no plans to reduce the duty on imported vehicles. This is coming on the heels of the suspension for one month (effective 8 March 2022) of the new Vehicle Identification Number (VIN) valuation system, which continues to generate criticisms from stakeholders in the industry. Among other issues, the clearing agents had alleged that the customs was using the VIN valuation policy to hike duties on imported vehicles arbitrarily. Some agents claimed that a foreign used car bought at about US$5,000 could require as high as US$14,000 to clear at the port.

The alleged rise in import tariff associated with the new policy and other issues around data, led to a protest by the clearing agents, causing the NCS to announce the suspension of the VIN policy for one month, to allow for the clearance of the backlog of imported vehicles while insisting that the policy would remain in place. The Nigerian Customs Service (NCS) in January 2022 introduced a new Vehicle Identification Number (VIN) Valuation system that is expected to aid the valuation of vehicles coming into the country through the borders. This policy allows importers to auto-generate tariffs on imported cars. This initiative informed the relaxation of the ban on the importation of vehicles through the land borders in 2019.

There is a clause in the Nigerian Finance bill that should drive down import duty on foreign vehicles from 35% to 5%. This, according to the government, is to reduce the cost of transportation. Industry players and investors warn that if the bill is passed into law, it could mark the end of local manufacturing and significantly affect assemblers who have invested huge sums. The Nigerian consumer has been through another recession since the recession in 2016 and has been stifled by high inflation and multiple devaluations, implying the inability of a majority to afford new cars. Unless there is a thriving middle class, it will be correct to say the automobile industry cannot be successful as many Nigerians will continue
to settle for Tokunbo cars.

The Nigerian automotive policy was introduced in November 2013 to resuscitate Nigeria’s moribund automobile industry. The policy allowed local assembly plants to import completely knocked-down vehicles at 0% duty and semi-knocked-down vehicles at 5% duty, while importers pay a 70% duty on new and previously owned vehicles. About 54 licenses were granted. Also, an accommodating tariff of 35% was imposed on cars imported by companies who have expressed interest and met investment milestones for local assembly. The economic recession in which the country slumped shortly after the automotive policy was introduced did not bode well for the resuscitation of the industry. The weakened exchange rate sent the prices of new cars far above the reach of Nigeria’s shrunk middle class. Automobile dealers saw a significant fall in sales volumes, and even locally assembled vehicles, for which the policy was enacted, experienced significant price increases and are also out of the reach of the average Nigerian.