July 13, 2024

Multiple taxes cripple Nigerian businesses …Oil sector, Manufacturers, telecoms, aviation, SMEs hardest hit


Ilenre Irele

The aggressive tax hunt by the federal government and its agencies responsible for collection of taxes have led to serial extinction of some businesses, as well as near a collapse of some others.

According to EnergyDay’s extensive investigation, the tax regime has been shrinking the profit margins of many sectors, including oil and gas and causing constriction of hitherto thriving sectors of the economy. Given that the cost of production has spiraled out ballooned out of control, the capital base of many firms has been eroded, their projected revenues and profits largely depleted, consequently triggering their potential collapse.

The nation have been experiencing a debilitating revenue shortfall, with public finances under severe pressure. For instance, while the 2022 budget of N17.12 trillion has a deficit of N6.4 trillion, the 2023 budget of N19.76 trillion will have a deficit of N12.42 trillion.

A major chunk of the fund is spent on servicing the nation’s huge debts and over-bloated workforce, as well as to subsidise fuel subsidy.

So far, the Nigerian National Petroleum Corporation (NNPC), on behalf of the government, had incurred the sum of N3.08 trillion as subsidy costs between January and July 2022, out of which a total N2.04 trillion had been fully paid, while the payment of N1.04 trillion is carried forward.

The government had also projected to spend N6.7 trillion on petrol subsidy payments in 2023.

In August, the Debt Management Office (DMO), while putting Nigeria’s debt at N41.6 trillion in Q1 2022, said that debt servicing cost of N1.94 trillion surpassed total revenue earned by N310 billion in the first four months of 2022.

In its desperation to generate more revenue to compensate for the ever rising fuel subsidy and huge loses to oil theft, the Federal Government had escalated its revenue drive, especially tax generation, in a move to cover the gap.

President Buhari had on January 13, 2020, signed into law the Finance Bill 2019. The new act amended the Customs and Excise Tariff Tax Act, the Petroleum Profit Tax Act, the Company Income Tax Act (CITA), the Personal Income Tax Act (PITA), the Value Added Tax (VAT) Act, the Stamp Duty Act and the Capital Gains Tax (CGT) Act in order to enhance their revenue generation potentials for the country.

There are nine major types of taxes in the country. They are: Companies Income Taxes (CIT); Value Added Taxes (VAT); Withholding Taxes (WHT); Petroleum Profits Taxes (PPT); Personal Income Taxes (PIT); Stamp Duties (SD); Capital Gains Taxes (CGT); National Information Technology Development Levy (NITDL) and Tertiary Education Taxes (EDT).

However, EnergyDay findings revealed that apart from these nine statutory taxes collected by the FIRS, there are over 200 taxes currently being collected by federal, states and local governments agencies from companies operating in the country which they (firms) don’t get commensurate value for.

These types of taxes include but not limited to the waste treatment charge (paid by firms operating in Lagos); 1kobo telecommunications tax, advert and signage taxes; right of way charges; radio and television charges; business premises levy; National Health Insurance Levy; Nigeria Police Trust Fund Levy, as well as the recently introduced N10 per litre sugar tax on carbonated sugar drinks and beverages and several others.

From February 2020, the government began giving impetus to its non-oil revenue generation drive by introducing several measures, including the implementation of the revised Value Added Tax at 7.5 percent, increase in import duties paid on imported equipments, as well as new tariffs on electricity consumption, removal of fuel and electricity subsidies, among many others.

This came on the heels of a N10 tax on every litre of all non-alcoholic, carbonated and sweetened beverages drinks produced in the country.

In August, the government announced the now suspended 5% excise duty on telecommunication services after a massive protest by stakeholders and financial experts against the levy

Meanwhile, government’s resolve to boost its non-oil revenue through taxes seems to be impacting negatively on all sectors of the nation’s economy, especially hitherto thriving sectors like the telecommunications sector.
Available records show that 70 percent of homegrown telecoms companies have shut down in the last seven years owing largely to the harsh operating climate.

According to a recent report by the Nigerian Communications Commission (NCC), out of the 756 operators licensed by the commission, 568 have collapsed, remaining only 188 in operations, with many of them distressed.

Some telecoms experts who spoke with our correspondent on the development at the weekend warned that nine out of 10 indigenous telecoms companies would fold up in the next five years because of the harsh operating climate, especially from heavy tax burdens.

Checks revealed that telecoms companies operating in the country pay at least 47 taxes and levies to the three tiers of governments through collecting agencies like the Federal Inland Revenue Service (FIRS), states inland revenue services, Nigerian Customs Service, Federal Ministry of Environment, National Civil Aviation Authority, Nigerian Social Insurance Trust Fund (NSITF), Nigerian Pension Commission (PENCOM), and National Office for Technology Acquisition and Promotion (NOTAP).

Others include Federal Ministry of Works, National Inland Waterways Authority (NIWA), Nigerian Communications Commission (NCC), National Information Technology Development Agency (NITDA) and several other agencies of the federal, states and local governments.

While the FIRS solely collect four of the 47 taxes, namely (Companies Income Tax (30%), Withholding Tax (5%-10%), Value Added Tax (7.5%), and Capital Gains Tax (10%), joint inland revenue boards (comprising FIRS and states revenue services) collect Stamp Duties (2.25% dependent on the transaction.

On the other hand, states and local governments collect the remaining 32 taxes and levies, including Personal Income Tax, Right of Way charges, business premises, planning permit, site inspection fees, location plan/site analysis report fees, plan approval fees, building permit, environmental fees, tenement rates, signage and advert fees.

Others are the fire service fee, parking permits, effluent discharge, social services levy, employee development levy, operational permit, building fitness, capitation fee, infrastructure maintenance, hawking permit, way levy, shop rate, radio and TV licence, environmental/ecological fees, sewage fees, state environmental impact assessment, audit fees, gaseous emission, industrial generators and toxic emission, and installation of new telecommunication mast.

Another sector affected by the burden of taxes is the aviation sector. According to findings, over 80 airlines have gone into extinction in the last 10 years as a result of harsh operating environment.

Some operators who spoke on the issue of excessive taxes in Lagos at the weekend, said the little gains they make go to numerous government agencies in the form of taxes.
Some of the taxes, the sources revealed, include parking, navigation, ticket sales, cargo sales, value-added tax, passenger service, charter sales, aircraft inspection, simulator inspection and landing charges.

Other charges paid by airlines include enroute charge, fuel surcharge, electricity charges, airport space rent, apron pass, ramp access charges, ODC, terminal navigational charge and the newly imposed registration fee, among other fees paid to government agencies. Based on EnergyDay calculations, the fees paid by airlines are close to 80.

The high numbers of multiple taxes was confirmed by the operators who claimed they pay excessive charges to the Nigerian Airspace Management Agency (NAMA), particularly the payment of navigation charges which they described as absurd for domestic operations.
“There are so many issues in the aviation industry. Issues like high taxes are making airlines to be unprofitable here.

“We pay excessive charges to the Nigerian Airspace Management Agency. Paying navigation charges is absurd for domestic operations. The mortality rate of airlines in Nigeria is alarming. Over 80 airlines have gone into extinction in the last few years. And another 3 are on the verge of joining them”, warned Air Peace Chairman, Allen Onyema.
Further breakdown of the fees paid by airlines shows that they pay 5% ticket sales charge, 5% cargo sales charge and the 7.5% value-added tax.

The Chief Commercial Officer (COO) of Green Africa, Obiukwu Mbanuzuo, who also spoke on the development, revealed that on a one-way ticket sold by airlines, his airline pays N2,000 to the Federal Airports Authority of Nigeria (FAAN) as passenger service charge, and five percent (N2,500) to NCAA.

“From whatever is left, the airline also pays N2.50 for each litre of fuel to FAAN (via the marketer) and landing fees, which depend on the aircraft landing weight.

“Basically, FAAN collects a ‘throughput’ charge on each litre of Jet A1 sold to airlines. I understand that this was historically due to the underground fuel hydrants that supply international airports but those no longer work.
“Anyway, whatever price Jet A1 is, the marketer adds N2.50 per litre that the airline pays and this is paid to FAAN,” Mbanuzuo stated.

The Green Africa Airline COO further said that on every flight, airlines pay between N20,000 to N25,000 to NAMA as terminal navigation charges and en route navigation charges. Meanwhile, these excludes other charges to airports for space rental at the check-in counters, to handlers (NAHCO/SAHCO).

Bottling and beverage companies are also not left out in the downturn. A staff of the Nigerian Bottling Company (NBC) who spoke with our correspondent on the condition of anonymity, said the the management had shut down many production plants owing to several reasons, including rising cost and low sales.

“What we pay to governments in taxes, energy and haulage costs represent over 70 percent of our total cost. Government can help by lowering or totally removing some of the inhibiting taxes to help lubricate the industry”, the source advised.

The implementation of the 2021 Finance Act has also exacerbated the attendant burden on businesses, particularly the manufacturing sector, with many companies closing shops while those still in operations are daily scaling down operations.

For instance, since the start of implementation of the new tax regimes, the monthly inflation index had gone up. It had also contributed to the decline in the nation’s GDP growth rate as Nigerians continue to lower their consumption rate in the face of shrinking disposable income.
The effect is that inventories are pilling in manufacturers warehouses and shelvs, forcing manufacturers to halt production or totally close shops.

This medium gathered that no fewer than 850 companies have shut down operations in Nigeria since 2019 following the harsh operating environment triggered by the Federal Government’s economic policies.
Several sources who spoke to our correspondent said about 350 of the affected firms were in the manufacturing sector.

According to a top official of the Manufacturers Association of Nigeria (MAN), while some of the affected manufacturers relocated their businesses to neighbouring countries like Ghana and Benin Republic, at least 400 small-scale enterprises had closed down their operations as a result of the economic crisis, thereby throwing millions of Nigerians into the unemployment market.

Speaking on the matter, the Vice President, Manufacturers Association of Nigeria (MAN), Lagos Zone, Chief John Aluya, warned that multiple taxes creates a bad business ecosystem.

According to him, the extant law of the land-use charge confirmed a consolidation of all land-based laws and charges, but most member companies and even the association were being made to pay both land use charge and ground rent in Lagos. This is double taxation.
”Today, the central sewage has not been built by the Lagos State government, but we are being made to individually construct our effluent treatment plants and still pay the treatment charges to the state government without any value derived from the payment,” Aluya said.

The MAN boss advised the state government not to implement policies that affect drop in productivity, citing a sharp decline in capacity utilisation to 49% from 68.5% in the corresponding half of 2019.

“The capacity utilisation for both Ikeja and Apapa Industrial zones stood at 59 per cent and 64.2 per cent, respectively.

”The impoundment of trucks by the Lagos State committee on abandoned vehicles is highly disturbing.

”Trucks parked in front of the manufacturing facilities awaiting offloading their imported raw materials are being impounded as early as 6a.m. and the companies are being subjected to pay fines for offenses they do not understand,” Aluya lamented.


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