July 7, 2023/CSL Research

Recently, the President of the Federal Republic of Nigeria signed four executive orders with the aim of reducing cost pressures to be faced by manufacturers and stakeholders, who are already dealing with increased costs associated with the removal of fuel subsidies and the devaluation of the currency at the I&E window. The executive orders were as follows;

The Finance Act Order 2023 defers the commencement date of the changes
contained in the Act from 23 May 2023 to 01 September 2023;
• The Customs Excise Tariff Amendment Order 2023 moves the commencement date of tax changes from 27 March 2023 to 01 August 2023;
• The suspension of the 5% excise tax on telecommunication services and excise duty on locally produced products;
• The suspension of the newly introduced green tax on single use of plastics and the import tax adjustment levy on certain vehicles.

The extension of the implementation date of the Finance Act 2023 and Customs Excise Tariff Amendment gives room for restructuring of business operations in preparation for the full swing of the new taxes and will give businesses some respite while they grapple with the associated cost pressures from the current reforms. The higher FX costs for companies who previously got FX from the I&E window and the removal of the fuel subsidy will lead to a significant increase in the cost of operations for businesses across the country. The natural reaction would have been to transfer these increased costs to consumers, but it is unlikely that this can be done without an impact on sales volumes.

Since 2012, the Nigerian consumer has come under severe pressure. From fuel subsidy removals to the free fall of the Naira in recent years, to the imprints left by the border closure and insecurity in food processing regions, the Nigerian consumer has been left impoverished. In response, consumers have been trading down on the value chain, switching to cheaper alternatives as living costs rise in the face of generally low-income levels. Implementation of the new taxes and tariffs would have worsened the cost pressures these businesses face and we believe extending the commencement dates, though not a long-term solution will at least give these businesses some respite.