As Nigerians anticipate new policy outlines from President Bola Tinubu on the nation’s 64th Independence anniversary, analysts suggest the government should offer more fiscal incentives instead of burdening private businesses facing rising production costs and taxes.
Nigeria celebrates its 64th Independence anniversary, and expectations are high for President Bola Tinubu to unveil economic policies, including fiscal incentives to ease the strain on private businesses.
Finance Minister Wale Edun hinted that the federal government is considering tax breaks for companies hiring more staff and suspending import duties on certain goods to curb inflation. These measures are part of the Inflation Reduction Act, aimed at reducing production costs exacerbated by exchange rate weaknesses.
Edun stated, “The Inflation Reduction Act will include import duty exemptions, lowering tariffs, and tax breaks for employment. If you employ more people, you’ll receive a tax break.”
Fiscal Incentives to Boost Economy
Analysts believe the time has come to insulate the economy to withstand the current hostile climate. With rising production costs, many companies are shutting down or reducing operations, leading to job losses. Burdening businesses with taxes is seen as unfair given the infrastructure issues in Nigeria.
Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, Taiwo Oyedele, mentioned that the government is developing a system to provide tax relief to 95% of Nigeria’s informal sector. “We want to support the informal sector until they can pay taxes,” he said.
Oyedele confirmed that new tax reforms would target the middle class and elite, ensuring future governments uphold the reviews. He emphasized raising the exemption threshold for small businesses and low-income earners.
In recent years, Nigeria has intensified taxation to generate revenue. In 2020, the VAT rate increased from 5% to 7.5%.
Economic Gains from Tax Reforms
Idakolo Gbolade, Managing Director of SD&D Capital Management Limited, believes that granting tax breaks and suspending import duties will help companies recover from economic challenges. “This policy could reduce short-term government revenue but will foster long-term economic growth,” he said.
The rising cost of living in Nigeria, driven by inflation, exchange rates, and production costs, impacts citizens’ well-being. In April 2024, the Nigerian Electricity Regulatory Commission (NERC) announced a significant increase in electricity tariffs, a 240% surge.
Positive Tax Revenue Trends
According to the National Bureau of Statistics (NBS), corporate tax receipts surged by 150% in Q2 2024, reaching N2.47 trillion ($1.5 billion), largely due to an 87% increase from foreign companies. VAT revenue also rose by 99.82% year-on-year in Q2 2024.
Tax incentives are essential for stimulating economic activities. The United Nations Conference on Trade and Development (UNCTAD) defines tax incentives as measurable advantages given to businesses to encourage desired behavior. Many countries, including Nigeria, use tax incentives to attract investment and create jobs.
Infrastructure challenges, such as inadequate power and transportation, increase operational costs for Nigerian businesses. High taxes and unpredictable policies also deter investors and complicate compliance.
The independence anniversary provides an opportunity for the administration to improve life for Nigerians. Policies on fuel subsidy removal, foreign exchange reforms, and power sector tariffs have exacerbated the people’s struggles. Addressing these issues and supporting farmers could help Nigeria achieve food self-sufficiency.
In August 2024, the headline inflation rate eased to 32.15% from July’s 33.40%. However, it was 6.35% higher year-on-year compared to August 2023’s 25.80%. Experts believe sincere and vigorous policy implementation can reduce inflation and improve living conditions.
