- The Finance Act 2023 introduced an additional 0.5% levy on goods imported from outside Africa, along with amendments to various tax laws.
- The aim of the bill is to support the funding of the 2023 budget through improved tax administration and increased revenue generation.
- While non-oil revenue is expected to surpass projections, meeting the oil revenue target is doubtful due to issues like pipeline vandalism and theft affecting production levels.
The Finance Bill 2023 which was signed into law on 28 May 2023 by former President, Muhammadu Buhari imposes an 0.5% levy on goods imported into Nigeria from outside Africa. This is in addition to current custom duties and other approved charges.
Beyond the additional import levy of 0.5%, the bill has amendments to the following tax laws; Capital Gains Tax Act (CGTA),Companies Income Tax Act (CITA),Customs, Excise Tariff, Etc (Consolidation) Act, Personal Income Tax Act (PITA),Petroleum Profits Tax Act (PPTA), Stamp Duties Act (SDA), Value Added Tax Act (VATA), Corrupt Practices and Other Related Offences Act and Public Procurement Act. The Act seeks to provide support for the funding
of the 2023 budget through an improvement in the tax administration.
The country’s fiscal position remains constrained due to poor revenue generation capacity, especially oil revenue. Non-oil revenue projections for 2023 will likely be surpassed in our view especially with the provisions of the finance act.
Given the expectations of continued inflationary pressures, we expect VAT revenue to maintain a growth momentum since VAT is deducted by applying VAT rate on the value of transactions. An increase in prices of goods and services will necessarily imply growth in VAT collections.
Likewise, we are also optimistic on the revenue from CIT payments given expected improvement in major companies’ profitability in the year, which translates to higher tax payment. Beyond that, taxes from new sources such as the N10 per litre tax placed on carbonated drinks, tax on phone calls to fund healthcare, and 10% on disposal of shares worth N100 million and above, should support accretion to non-oil revenue. Hence, we believe the non-oil revenue will likely outperform 2023 budget estimates.
On the other hand, we are a little sceptical on the country’s ability to meet its oil revenue target. While we think the oil price estimate of US$75 dollars is achievable, we do not believe that the target oil production of 1.69mbpd is achievable. Going by the latest data released by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), average daily oil production (including condensates) has averaged only 1.45mbpd from January to May 2023.
The perennial issues of pipeline vandalism, theft, and terminal shutdowns have continued to constitute clogs. While efforts are being made to stop theft, we still believe oil production will most likely remain at sub-optimal levels for the rest of the year.
Despite the growing concerns about the multiplicity of taxes, the new Finance Act 2023 introduces new taxes while increasing some of the existing tax rates. The penalty for various infractions and tax offences for companies operating within the downstream petroleum sector was also increased.
Overall, within the 31 sections of the Act, almost all categories of taxpayers across different sectors are affected by the amendments, it is therefore expected that this may add a layer of pressure on the hard hit citizens.
