NIGERIA FISCAL POLICY 2023
Fiscal Policy Measures (FPMs) are crucial macroeconomic tools for advancing economic growth and assisting the government in managing its budget. The Federal Government of Nigeria released a circular on April 20, 2023, establishing additional taxes in the FPM for 2023. Before its implementation, the Nigerian economy faced a number of difficulties, including high inflation, low economic growth, low oil output, inconsistent revenue generation from NNPC due to crude oil theft, macroeconomic uncertainty, rising public debt, worsening budget deficit, and low public debt.[4]
The federal government has committed a substantial amount of funds to pay off debt with the income it generated, leaving a sizable shortage in infrastructure needs. The government of Nigeria had a budget deficit of N6.3 trillion as of 2022, while its revenue as a percentage of nominal GDP was at 3%.[5] During this period of economic decline on a larger scale, the FPM 2023 was implemented. The reasons behind the introduction of the FPM were numerous, including the imperative to broaden the economy’s scope, decrease reliance on income from crude oil, boost revenue generation, and tackle the existing infrastructure deficiencies within the nation.[6]
The FPM has brought about several fresh tax measures, encompassing Supplementary Protection Measures (SPM), adjusted rates of excise duty, green taxes (10%), import Adjustment Tax (2-4%), and telecommunication tax (5%). As a result of these newly implemented taxes, the importation of goods like rice, woven fabrics, ceramic tiles, sinks, and other items will be impacted by the influence of SPM.[7]
These additional taxes are projected to generate government revenue, fostering the improvement of domestically produced goods, boosting manufacturing productivity in the economy, promoting climate change resilience in a sustainable manner, and encouraging local production. On the other hand, the new taxes are also expected to have adverse effects on the economy, particularly impacting the MSME (Micro, Small, and Medium Enterprises) ecosystem. The elevated taxes on imported goods, excise duties, and the introduction of new taxes will lead to increased production costs, resulting in reduced competitiveness, particularly in the international market. The surge in production expenses may lead to decreased demand, causing a decline in revenue, job losses, and business closures.[8]
Nevertheless, the implementation of the Federal Policy on Taxation for 2023 (FPM 2023) in Nigeria has raised several concerns. Primarily, stakeholders were not involved in the decision-making process before its approval.[9] Furthermore, there are inconsistencies in the policy’s approach to enforcing green taxes, and insufficient impact assessment has been carried out to gauge its potential effects. Adding to the complexity, the implementation of FPM 2022 is still ongoing, which further complicates the situation.[10]