The Federal Government of Nigeria has unveiled an ambitious plan that includes tax breaks for companies increasing their workforce and the suspension of import duties on certain goods.
These initiatives are part of the forthcoming Inflation Reduction Act, set to be signed by President Bola Tinubu in the coming weeks, as announced by the Minister of Finance and Coordinating Minister of the Economy, Mr. Wale Edun.
The federal government is looking to bolster employment by offering outright tax breaks to companies that hire more staff. In an exclusive interview on AIT’s Money Line, Mr. Edun emphasized the importance of these fiscal incentives to reduce production costs, which have been driven up by the weakened exchange rate and recent policy changes.
Tekedia Mini-MBA edition 15 (Sept 9 – Dec 7, 2024) has started registrations; register today for early bird discounts.
Tekedia AI in Business Masterclass opens registrations here.
Join Tekedia Capital Syndicate and invest in Africa’s finest startups here.
He stated, “The Inflation Reduction Act will contain a range of import duties, exemptions, lowering of tariffs, and outright tax breaks for employment. If you employ more people, you will be given a tax break against it. A range of fiscal incentives will be laid out in an executive order which Mr. President will sign in due course.”
The minister elaborated on the measures the government is taking to tackle inflation and revamp the economy.
Import Duty Suspensions to Tackle Inflation
In an effort to reduce the cost of essential goods, the government will grant more import duty suspensions. This measure aims to lower the cost of importing critical items, decreasing the overall cost of goods in the market. The suspension of import duties is designed to stabilize prices and ensure that Nigerian consumers have access to affordable products.
Addressing the High Cost of Fuel Imports
The federal government currently spends about $600 million monthly on petrol imports, a significant financial burden. Much of this cost is attributed to neighboring countries in Central Africa benefiting from Nigeria’s fuel imports.
Mr. Edun highlighted the need for more efficient strategies in fuel importation and distribution to alleviate this economic strain.
Ensuring Food Affordability
To combat rising food prices, the government is implementing measures to ensure the availability of homegrown food. This includes distributing grains from strategic reserves and opening a window for food importation.
Mr. Edun assured that these steps would not undermine local farmers, as imports will only be allowed after local supplies are exhausted, with auditors in place to verify this. This approach aims to reduce food prices while supporting domestic agriculture.
Fiscal Prudence and Market Instruments
Mr. Edun emphasized the government’s commitment to fiscal prudence, noting that they have not approached the Central Bank of Nigeria (CBN) for Ways and Means advances to pay government debts or salaries. Instead, market instruments have been used to reduce debt, which is essential for maintaining economic stability.
He clarified, “Although the limit was raised to 10 percent, it does not necessarily mean it will be used. This increase serves as a fail-safe, providing extra flexibility to cover payments if there is a timing gap between incoming revenue and expenses.”
The amendment of the CBN Act to increase the Ways and Means advances limit to 10 percent has sparked concerns among financial analysts. This adjustment provides the government with the flexibility to borrow up to 10 percent of its previous year’s revenue from the CBN to cover temporary shortfalls.
However, given the antecedent of former President Muhammadu Buhari, who borrowed over N22 trillion illegally, there are worries about potential misuse.
Under Buhari’s administration, the excessive borrowing led to skyrocketing inflation and a significant increase in the national debt. Analysts have argued that raising the borrowing limit could open the door to similar fiscal indiscipline, exacerbating Nigeria’s economic challenges.
The concern is that the government might resort to using these advances as a regular funding source rather than as a last-resort measure, potentially plunging the country into deeper financial woes.