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MAN Slams FRCN’s New Charges, Warns of Severe Impact on Manufacturing Sector

MAN Slams FRCN’s New Charges, Warns of Severe Impact on Manufacturing Sector

The Manufacturers Association of Nigeria (MAN) has strongly opposed the Financial Reporting Council of Nigeria’s (FRCN) recently introduced financial charges under the amended FRCN Act 2023, warning that these fees could spell disaster for Nigeria’s struggling manufacturing sector.

In a statement, MAN’s Director General, Segun Ajayi-Kadir, described the charges as “astronomical” and called for their immediate suspension. He argued that the new fees add to an already overwhelming array of levies and regulatory costs that manufacturers are burdened with, exacerbating the challenges they face in an increasingly difficult business environment.

The crux of MAN’s criticism lies in the reclassification of non-listed manufacturing companies as Public Interest Entities (PIEs), making them subject to hefty financial obligations. The amended FRCN Act 2023, particularly Section 33, mandates annual charges for non-listed entities based on a percentage of their turnover. The maximum rate is set at 0.05% for companies with a turnover exceeding N10 billion.

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Publicly listed companies, previously paying a capped fee of N1 million annually, now face a steep increase to N25 million. However, non-listed companies, which were previously excluded, face an even graver situation as there is no upper limit to their charges, regardless of their profitability.

“For non-listed companies, who were previously excluded, there is no cap, and it is linked to the turnover, irrespective of whether the company is profitable or not,” Ajayi-Kadir emphasized.

Harsh Penalties and Criminalization of Non-Compliance

In addition to the financial strain, the amended act introduces severe penalties for non-compliance, including a 10% monthly penalty for non-payment and the possibility of imprisonment for up to six months for defaulting Chief Executive Officers (CEOs).

Ajayi-Kadir argued that criminalizing non-payment of regulatory fees is excessive, noting that in most cases, regulatory breaches attract fines, not jail time.

“The strict penalties and possible conviction to imprisonment could be construed as having the nature of a criminal law. Generally, non-payment of fees/dues typically results in other penalties or fines, and imprisonment provisions are applicable only in cases where non-payment is seen as an act of defiance or fraud,” he explained.

An Avalanche of Fees and Levies

The new FRCN charges add to the myriad of levies, taxes, and fees already imposed on manufacturers. MAN has repeatedly criticized the multiplicity of regulatory charges, arguing that they significantly erode the competitiveness of Nigerian-made products.

Manufacturers are currently required to pay fees to various regulatory bodies, including the National Agency for Food and Drug Administration and Control (NAFDAC), the Standards Organization of Nigeria (SON), and several state and local government levies. These fees, often duplicated and inconsistent, contribute to the high cost of production in Nigeria.

Manufacturers Also Struggling with Power Issues

Beyond regulatory costs, Nigeria’s manufacturing sector continues to struggle with the high cost and unreliable supply of electricity. The sector relies heavily on self-generated power, primarily through diesel-powered generators, which significantly increases production costs.

Ajayi-Kadir has lamented that despite repeated promises, the government has yet to adequately address the power supply issue, which remains one of the largest challenges facing the sector. He noted that the epileptic power supply not only drives up costs but also hampers productivity.

Many manufacturers are spending more on diesel and maintenance of generators than they are on raw materials.

Economic Timing Could Not Be Worse

The timing of the FRCN’s new charges also raises concerns, coming at a period when manufacturers are already grappling with high inflation, forex shortages, and a challenging economic climate. The introduction of new fees now, MAN warns, could stifle investment and derail the government’s efforts to boost the productive sector.

“Introducing these charges during a period of economic difficulty could stifle investment in Nigeria’s productive sector,” Ajayi-Kadir said.

Contradiction to Ease of Doing Business Agenda

The FRCN’s move appears to run contrary to the government’s stated objective of improving the ease of doing business in Nigeria. Under President Bola Tinubu, the federal government has embarked on a tax reform agenda aimed at streamlining regulations, harmonizing taxes, and creating a business-friendly environment.

However, MAN argues that the FRCN’s policy undermines this agenda. The association is urging the FRCN to align its fees with the ongoing tax reform process to avoid counterproductive outcomes.

“MAN therefore implores the FRCN to be mindful of the potential negative impact of its continued administration of the fees on businesses and put it on hold. We admonish the FRCN to await the enactments of the tax reform laws and realign its operations with the relevant provisions,” Ajayi-Kadir noted.

Industry stakeholders are now calling on the federal government to intervene and prevent the implementation of the new charges. They argue that a balanced approach is needed to ensure that financial regulations do not stifle business growth.

Experts have suggested alternatives, including a phased implementation of the charges, setting a reasonable cap for non-listed companies, and providing waivers or reliefs for struggling businesses.

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