In a move to alleviate the economic pressures faced by millions of Nigerians, the Presidential Committee on Fiscal Policy, chaired by Taiwo Oyedele, has proposed sweeping tax reforms aimed at removing taxes on essential goods and services critical to the well-being of the populace.

This proposal, shared by Oyedele during an interview with Channels TV in Abuja on Monday, marks a critical step in the federal government’s broader effort to create a more equitable and sustainable economic framework.

Key Components of the Proposal

The committee’s recommendations include the removal of all taxes on food, public transportation, and housing—items deemed essential for everyday living. These measures are intended to directly benefit low- and middle-income Nigerians, who have been disproportionately affected by the country’s economic challenges, including rising inflation and the removal of fuel subsidies.

A particularly notable aspect of the proposal is the exemption of Value-Added Tax (VAT) on these basic necessities. Oyedele emphasized that this approach is designed to ensure that the cost of living is more manageable for the average Nigerian.

“What we have taken into account is what are those basic necessities of life—food, accommodations, transportation, education, and health. We’ve deliberately identified those items. And we’ve removed almost all the taxes applicable to them, including no VAT,” Oyedele explained.

He further clarified that while certain forms of public transportation, such as shared passenger buses, will be entirely tax-free, services that cater to more affluent individuals, like private taxi hires, will still attract taxes. “If you hire a taxi, we assume that you’re not the poorest Nigerian, so you have to pay the tax. Whereas if you get into a bus, that will be completely tax-free,” Oyedele noted.

The Federal Government had earlier directed the Nigerian Customs Service (NCS) to remove import duties on select food items and other essential goods, including medicines.

Job Creation Incentives

In addition to alleviating the tax burden on basic necessities, the committee has also put forward proposals aimed at stimulating job creation within the private sector. One of the key recommendations is offering tax exemptions to companies that significantly increase their workforce. This policy is designed to encourage businesses to expand their operations and hire more workers, thereby addressing the high unemployment rate in the country.

“We’ve also developed some proposals where the government can give relief to private sector employers who provide transportation relief to their workers,” Oyedele added. “Also, we have had proposals around more employment. So if an employer employs more people than they will normally do, they get some relief. That helps to stimulate employment generation.”

The Challenge of Multiple Taxation

The committee’s recommendations come at a time when Nigeria’s complex tax environment has been widely criticized for stifling economic growth. Multiple taxation has been a major impediment, with various sectors of the economy bearing the brunt.

For example, in the first half of 2024, MTN Nigeria, the country’s largest mobile network operator, reportedly paid an astonishing N232 billion in taxes—a 586% increase from the same period last year. The company paid 54 different taxes in 2024 alone, imposed by federal, state, and local government agencies.

This overwhelming tax burden, which is expected to increase next by the end of the year, is not unique to MTN but affects the entire telecommunications sector. The Association of Licensed Telecommunication Operators of Nigeria (ALTON) has highlighted that state governments collect the majority of these taxes, which include building permits, sewage fees, and other arbitrary levies.

Gbenga Adebayo, President of ALTON, revealed that these taxes have increased the operational costs of telcos by 50% in 2024.

“The multiple taxes are driven primarily by revenue,” Adebayo stated. “There is a perception that the telecoms industry is highly profitable and so can be treated as a cash cow.”

He warned that the current tax environment threatens the expansion of broadband infrastructure, which is crucial for integrating millions of Nigerians into the digital economy.

Tackling the Menace

The federal government’s ongoing tax reform initiative, launched following the establishment of the tax and fiscal policy committee by President Bola Tinubu in August 2023, is a response to the pressing need for a more balanced and growth-oriented tax system. The committee, led by Oyedele, is tasked with crafting a new tax framework that not only drives economic growth but also ensures that the tax burden is equitably distributed.

The proposed tax exemptions on essential goods and services represent a bold step in this direction. However, the successful implementation of these reforms will depend on their approval by the National Assembly and the ability of the government to enforce them effectively.

Act 1, Scene 1: Nigeria floats its currency and removes fuel subsidies. A village boy from Ovim cautioned: “Nigeria’s floating of its currency, while progressive, will cause severe perturbations in the economy – and a stable state may not come as most experts have predicted”.

Act 1, Scene 2: Manufacturing companies are rattled, banks book unreal profits.

Act 2, Scene 1: Economic activities froze, factories went down, and governments lost massive tax revenue.

Act 2, Scene 2: The nation’s lender of last resort, NNPCL, booked strategic losses to decouple deteriorating floated Naira from the vagaries of escalating imported energy costs. By doing so, it paused any strong correlation between the exchange rate and petrol prices. 

Act 3, Scene 1: The press accused the lender that it was owing partners more than $6 billion due to the strategic subsidies, as fuel scarcity hit the land. The lender rejected the claim.

Act 3, Scene 2: The lender then came clean and wrote: “This financial strain has placed considerable pressure on the Company and poses a threat to the sustainability of fuel supply”.

Act 4, Scene 1: With the lender’s purse dry, the government updated the petrol price to  N855 per liter from about N650/liter.

The Play Ends.

The next Play will begin soon since this N855/liter is still below the landing cost of petrol.  However, this next Play could be amazing since Dangote Refinery is expected to commence the supply of petrol to local filling stations. Also, the government did the right thing by selling the crude oil in Naira to the refinery.

Yet, if you sell the crude oil in Naira, the nation’s foreign earnings will go down, and those foreign loan interests which must be paid in US dollars will still be serviced. So, when a bird flies from the land and perches on the ant-hill, it is still largely on the ground. In other words, Nigeria still needs US dollars in American banks to pay its debts.

With all said, the next Play will begin once we know what price Dangote Refinery and NNPCL will sell petrol at. That information is still classified but we expect it in days!

Indeed, the next Play will begin soon since this N855/liter is still below the landing cost of petrol.  But wait: Dangote Refinery will begin to sell petrol soon and NNPC will be the sole buyer: “Dangote Refinery has reportedly started processing petrol after delays, with NNPC set to be sole buyer. Dangote Oil Refinery has commenced petrol processing following delays caused by recent crude shortages, a Reuters report which quoted an executive said on Monday”. The price it will sell  is still classified but we expect it in days!

What a nation!

Nigeria stands at the cusp of a transformative moment in its energy sector as the Dangote Refinery, Africa’s largest petrochemical plant, is set to roll out its first supply of Premium Motor Spirit (PMS), commonly known as petrol, today, Tuesday, September 3.

With a staggering capacity of 650,000 barrels per day, the refinery’s operations signal a potential end to Nigeria’s longstanding dependency on imported fuel. The commencement of petrol production at the Dangote Refinery is expected to bring much-needed relief to Nigerians who have been grappling with severe fuel shortages and escalating prices.

These shortages have caused widespread disruptions, leading to long queues at filling stations and exacerbating the economic hardship already felt by many Nigerians. The refinery, which has now completed its testing phase, is poised to deliver a steady supply of petrol, potentially stabilizing the market and ensuring more consistent availability of fuel across the country.

Insider sources have confirmed that the Nigerian National Petroleum Corporation (NNPC) Limited will be the first purchaser of Dangote’s petrol. NNPC officials are already on the ground at the Lagos petrochemical plant, ready to take delivery of the products as they roll off the line, according to the sources. Aliko Dangote, the billionaire entrepreneur behind the refinery, is personally overseeing this landmark event, marking the culmination of years of planning, investment, and overcoming numerous hurdles.

This rollout marks a historic milestone for Nigeria’s oil and gas sector. For decades, Nigeria, despite being one of the world’s largest crude oil producers, has relied heavily on imported petrol to meet domestic demand. The Dangote Refinery’s capacity not only to satisfy Nigeria’s daily consumption of approximately 35 million liters but also to produce excess for export to neighboring countries positions it as a game-changer in the industry.

Concern Lingers About the Cost

However, as the refinery begins its operations, concerns about the pricing of its products are casting a shadow over what should be a moment of national triumph. There is a growing sense of unease regarding the potential cost of this petrol as the Dangote Refinery has yet to officially announce the price at which it will sell its products.

This uncertainty has fueled speculation, with some industry insiders suggesting that the price could be as high as N1,000 per liter. If accurate, this price would represent a significant increase from current levels, raising concerns about the affordability of petrol for ordinary Nigerians.

The speculation surrounding the pricing is not without merit. In recent months, Nigeria has faced a series of economic challenges, including high inflation, FX volatility, and the removal of long-standing fuel subsidies. These factors have already led to a sharp increase in the cost of living, with petrol prices playing a central role in driving up transportation costs and, by extension, the prices of goods and services across the economy.

Billy Gilly-Harry, President of the Petroleum Products Retail Outlets Owners Association of Nigeria (PETROAN), has urged Nigerians to brace for a potential price increase. Speaking as a guest on Channels Television’s Morning Brief program, Gilly-Harry noted that the current prices, which hover around N700 per liter, may no longer be sustainable.

“We have been shouting that they (NNPC) have been selling products at N590 per liter. Who is bleeding? Somebody is bleeding, and we need to tell what exactly is going on; we cannot play politics with everything,” he said, underscoring the financial strain on the NNPC and the broader implications for the market.

The NNPC’s financial challenges are a significant factor in this situation. The state oil corporation recently admitted that it is grappling with over $6 billion in debt owed to international oil traders for the supply of PMS. This debt burden has severely limited the NNPC’s ability to import sufficient quantities of petrol, contributing to the current scarcity and high prices. Petrol currently sells for around N950 and even exceeds N1,000 per liter at some filling stations not owned by the NNPC, a situation that has further compounded public anxiety.

Gilly-Harry explained that the high prices are largely due to the logistics involved in bringing the products into the country.

“You are trying to buy water, and you ask the water merchant to supply you. But the supplier has to walk miles to get the water to you. The price of water you get nearby will be different from the one you get far away. The answer is no. That is what is happening. The cost of bringing in products today is much because of the distance,” he explained, drawing a parallel between the challenges faced by the NNPC and the broader pricing dynamics in the market.

Many believe that the rollout of petrol from the Dangote Refinery is, therefore, a double-edged sword. On the one hand, it represents a significant step forward in Nigeria’s quest for energy security and self-sufficiency. On the other hand, the potentially high cost of this domestically produced petrol could negate many of the benefits, especially for a population already struggling with economic hardship.

Moreover, the complete deregulation of the downstream sector, which Dangote Refinery’s operations symbolize, is expected to pave the way for increased competition in the market. However, this competition will only be beneficial if it leads to fair and affordable pricing, something that remains uncertain as the country waits for the official pricing announcement from Dangote Refinery.

The Nigerian government has played a crucial role in supporting the Dangote Refinery project, including facilitating an arrangement that allows the refinery to purchase crude oil in local currency and sell its products in the same currency. This move is designed to ease the pressure on Nigeria’s foreign exchange reserves, but it also ties the refinery’s pricing strategy closely to the fluctuations of the naira, adding another layer of uncertainty to the situation.