The Impact of The 400% Import Duty Surge in Nigeria Over the Past Year

In the past year, Nigeria has witnessed a staggering surge in import duties, marking a profound shift in the country's economic landscape. Since beginning of February 2024, the Customs duties have undergone an alarming escalation, with import duty price increases occurring five times within this month. The latest adjustment on February 19th, elevating the exchange rate to $1537, epitomizes the relentless climb.

THE GENESIS

However, the genesis of this surge can be traced back to June 2022, when the Nigerian Customs Services (NCS) introduced the Vin Valuation Model, revolutionizing tariff structures for imported vehicles. While aimed at standardizing tariffs for similar car models, the policy unwittingly catapulted import duties to unprecedented levels. Freight forwarders decried the policy, citing a staggering 300 percent surge in import duties for cars, casting a shadow over the affordability of foreign-used vehicles for many Nigerians.

FLOATING NAIRA AND ITS EFFECT ON IMPORT DUTY

The turbulence exacerbated in May 2023, with the Central Bank of Nigeria (CBN) adopting a floating exchange rate system against the dollar, sending shockwaves across the import landscape. Subsequently, the maritime sector bore the brunt of a 40 percent increase in the dollar-to-naira exchange rate for import duty calculations in June 2023, further inflating import costs.

As the exchange rate continued its upward trajectory, hitting N783.174/$1 by November 2023, the repercussions reverberated through the economy. Reports indicated a 70 percent decline in vehicle imports by July 30th, coupled with a 4.5 percent drop in revenue collection by the NCS in the first half of the year, attributed to global trade disruptions and the exchange rate fluctuations.

The introduction of the New Customs and Excise Management Act (CEMA) bill, though intended to modernize regulations, drew criticism for its perceived one-sidedness and lack of consultation with stakeholders, prompting calls for revisions to foster international trade and revenue targets alignment.

FOREX UNIFICATION REFORM AND ITS EFFECT ON IMPORT DUTY

Amidst these challenges, President Bola Tinubu's pledge for economic reforms upon assuming office following the 2023 elections injected hope. The unification of the forex market under the Investors and Exports (I&E) window signaled a shift towards market-determined exchange rates, albeit with operational challenges for importers.

Nevertheless, the imposition of a 40 percent increase import duty on vehicles of course has started affecting the transportation economy, particularly considering Nigeria's heavy reliance on road transportation and the affordability crisis it exacerbated, especially for the middle class. The ripple effects extended beyond the automotive sector, contributing to rising costs across various goods and commodities, underscoring Nigeria's import dependence.

GLIMMER OF HOPE

However, amidst the tumult, a glimmer of hope emerged from the House's resolution advocating for a maintained exchange rate for customs duties below N1,000/$1, envisioned to stimulate patronage in Nigerian ports, curb inflation, and bolster economic stability. Yet, the realization of this resolution remains paramount to stave off further price hikes and navigate Nigeria's economic resurgence amidst challenging times.

Conclusion: Embracing Rental Solutions Amid Economic Uncertainty

In light of skyrocketing customs duty rates and a staggering 150% increase in asset prices over the past year, the prospect of acquiring new assets appears daunting. While potential relief may come from the Senate's consideration of a bill to stabilize exchange rates for customs duties, the immediate reality remains challenging.

As businesses grapple with the financial strain, opting for rental solutions, particularly for vehicles, emerges as a prudent strategy. Renting offers a cost-effective and flexible alternative, sparing companies from hefty upfront expenses associated with purchasing assets outright.

By embracing rental options, businesses can navigate economic uncertainties more effectively, preserving capital and maintaining operational agility. In essence, amidst these turbulent times, the smart choice is to adopt rental solutions, ensuring financial stability and business resilience in the face of adversity.