I have read at different times that Nigerian Custom met or surpassed her targets. It gives me concerns to wonder who gives the targets, what is the reason for setting such targets, and what are the economic rationales for setting such targets.
It is generally known in economic cycle that import duties are used for different purposes. These include protection of infant industries, discouragement of harmful goods, prevention of dumping, correction of balance of payment problem, generation of income for government, etc. While income generation is an important reason, it does not come first on the ladder.
This is because using import duty as revenue generation must be done with caution; otherwise, the country pays more. ALSO READ Tackling the ECOdemics of this ongoing Pandemics: The Nigerian Case.
If a country is a productive one, raising import duty will discourage imports, and makes people consume local goods. However, if a country is not producing but depends on imports, like Nigeria, the demand for imported goods is inelastic. Raising import duties is equal to raising inflation by increasing the cost of Import. This is one of the causes of inflation in Nigeria.
The more money custom makes for the government, the more the inflation, the less is the value of wages and salaries of workers, and the more is the agitations for salary increase. The cycle just keeps going on and on. Hence, the revenue increase that is made has no real positive impacts at the end. It is what I call Revenue Illusion.
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Take for instance automobile importation into the country. I did a little research online to check for the cost of importing vehicles. For instance, to import 2005 vehicles, like a Sienna, costs between 350k to 450k. 2011 will cost between N1m to N1.5m. This also includes some other costs like agency cost, but the bulk is for clearing.
The implications of this are many.
1. Increase in the landing cost of vehicles in the country
2. Citizens are conditioned to use old and used cars. When last did you see Nigerians use new cars? People would buy 1998 Camry and take it to church for thanksgiving
3. Old cars consume more fuel, generate more pollution than new ones. This is one of the reasons why our daily fuel consumption in the country is high. High demands for fuel will also mean government pays more on subsidy. It will also tell more on our foreign exchange. Depreciation of our exchange rate will further lead to problem in other sectors which also depend on imports.
4. High cost of transportation. High fuel usage will mean high transportation cost. This will have effect on the general price level in the country, Inflation.
5. Continuous Demand for wage increase.
6. Poverty and low self-esteem, etc
Hence, has the more revenue made by government by increasing imports duty made any real positive impact? No. It has only succeeded in causing more economic problems than it solved.
What the government should consider
If you must increase import duty, adopt import substitution approach. Identify some goods which you want to produce locally. Set a target to produce them. As you start the production, increase their import duties to ensure the survival of the new industries.
For those goods which you are not able to produce, reduce the import duty on them, but set a standard they must meet. For instance, stop importation of vehicles below 2010 by reducing drastically import duties on vehicle from 2010.
How then will government make money from the rich?
Government can still make the same amount of revenue she made in the case of rise in import duties. All that is required is a right policy. The policy is to differentiate between necessity and luxury. If you must buy luxurious goods, you should be prepared to pay for it.
People are already paying tax in the form of vehicles license. Let necessity be limited to maximum of two cars per family. Such people will pay normal tax as long as they are within the defined necessity.
For any extra car, a huge tax is paid annually.
This can also apply to firms but with little moderation.
This will go a long way to increase welfare of people, reduce demand for fuel, reduce transportation cost, stabilize exchange rate, reduce inflation and still generate income for government.
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The Irony of Import Duties in Nigeria and Nigerian Custom's "Target" By A.K John (Ph.D) https://t.co/2bDp1lJ8xK— Triumph Times (@triumphtimesng) May 19, 2020