Lagos, Nigeria, February 5, 2024: The recent adoption of the spot foreign exchange (FX) rate by the Nigeria Customs Service (NCS) for duty calculations has sent importers and the business community into a state of panic. In an unprecedented move, the NCS raised the import duty exchange twice within 24 hours, citing adherence to the Central Bank of Nigeria’s (CBN) directive.
The adjustment increased duties across commodity lines by 48.5%, with the rate moving from N951.94/$ to the current N1,413.6/$ in less than two days. The NCS defended its actions, stating that it is simply following the official market rate as directed by the CBN.
Since President Bola Ahmed Tinubu assumed office, the import duty determination rate has surged by 235%, standing at N422.3/$ as of May 29, 2023. The customs rate now mirrors the spot segment of the FX market due to the liberalisation of the exchange rate, leading to concerns about the unpredictability of import duties.
Critics argue that the adoption of the spot rate leaves importers uncertain about future duties, potentially worsening inflation, raising the cost of living, and increasing the poverty index. The recent increase has already triggered price adjustments, with imported items, including staple foods, seeing hurried price changes.
There are growing fears that the price of rice, a staple food in many Nigerian households, could experience a significant rise in the coming days. Traders warn that a 50-kilogram bag of rice may soar to N100,000, exacerbating the challenges faced by an average Nigerian.
Some stakeholders have expressed concerns that the upward review of the exchange rate for import duties would fuel inflation, escalating production and operating costs. Businesses, already reeling from currency devaluation, are expected to face further challenges.
Economists and industry experts recommend a review of the current approach, urging the government to consider the adoption of an average rate for duty computation to provide stability and predictability in prices. The potential implications of the frequent changes in import duties on the business community and overall planning are also highlighted.
In response, the National Public Relations Officer of the Nigeria Customs Service, Abdullahi Maiwada, emphasised that Customs does not determine the exchange rate but implements government-derived rates. While the government aims to generate substantial revenue through this approach, concerns are raised about the impact on manufacturers, consumers, and the overall economy.
The rise in import duties may also lead to a surge in the prices of vehicles as duty costs increase. The country witnessed a 32% decrease in vehicle importation in 2023, and the recent duty rate adjustment is seen as Customs’ response to meet a N5 trillion revenue target for the year.
As stakeholders assess the situation, the economic landscape is poised for further challenges, with uncertainties surrounding the future of import duties and their broader impact on various sectors of the Nigerian economy.
