The makers of Indomie Noodles, Dufil Prima reported that their decision to switch to gas had saved them up to 80% of their energy costs compared with when relying on diesel.
Reports are circulating stating that the Federal Inland Revenue Service (FIRS) has instructed the Nigeria Customs Service (NCS) to commence levying a 7.5% Value Added Tax (VAT) on Automotive Gas Oil (AGO), commonly referred to as diesel, imported into the country.
Consequently, the Nigeria Customs Service, represented by Assistant Comptroller-General of Tariff and Trade, MBA Musa IN, acting on behalf of the Deputy Comptroller-General of Tariff and Trade, has officially notified oil marketers in the nation regarding their intention to enforce the newly imposed VAT requirement on diesel imports.
Also Read: VAT Earnings Jump 29 Percent in Q3 2020
The circular which was released from Customs to the diesel importers read, “I am directed to forward a letter from Federal Inland Revenue Service on the above subject matter. The VAT Modification order 2021 only exempts Petroleum products of HS codes 2709.00.00.00 – 2710.19.12.00 from payment of VAT. AGO or Diesel falls classifiable under HS Code 2710.19.21.00 and is not exempted from paying VAT.
“Subsequent upon the above, all future importations of the product should assess and pay VAT at the point of entry into the country.
“Also note that AGO or diesel are not exempted from destination inspection or import guidelines and as such are expected to process Form M and PAAR as well as make declarations appropriately in the NICIS II system,”
With diesel prices hovering around the N840 region in 2023, the implementation of a 7.5% VAT on diesel imports could see the pump price range for diesel move between N903 to N953 per litre as the tax burden could shift from importers to consumers. This development follows the recent decision by the federal government to halt subsidy payments on Premium Motor Spirit (PMS), commonly known as petrol, thus pushing its price from N185 to about N500 per litre within a month, leading to a surge in transport costs across the country.
The moves by the Federal Government, while aimed at improving the dire revenue situation of the Federal Government, are not without significant impact on the lives of Nigerians. While also taking into consideration the planned electricity tariff hike as the government plans to end every form of subsidy in the energy sector.
The introduction of VAT on diesel imports is likely to have the most effect on manufacturers, as diesel costs make up a considerable portion of Nigeria’s manufacturing energy expenses. In the past, the Manufacturers Association of Nigeria consistently expressed concern over the rising price of diesel, however, there has been no official response to the news of the introduction of VAT on diesel. Due to the expected hike in the price of diesel, the manufacturing cost is likely to rise, leading to an inevitable increase in the cost of manufactured goods.
Service sector industries such as telecommunication companies (Telcos), and financial services companies will also be hit by this new policy as diesel makes up the bulk of their energy cost. In July 2022, the Association of the Telecommunication Companies of Nigeria (ATCON) wrote to the Nigerian Communications Commission (NCC) for approval to raise prices over the rising cost of diesel.
Also Read: VAT: Political Heat Rises as El Rufai Hosts Northern Governors
With the rising energy cost in Nigeria, increased attention is been paid to alternative energy sources. For example, experts have started for manufacturing industries to switch their energy supply to gas. For example, the makers of Indomie Noodles, Dufil Prima reported that their decision to switch to gas had saved them up to 80% of their energy costs compared with when relying on diesel. Also, in an event in March this year, the Executive Vice Chairman of the NCC urged the Telcos to switch to renewable energy sources to minimize energy costs.
