Since the federal government’s foreign exchange reform went into effect eight months ago, customs charges paid on imported products have increased by almost 93% due to the naira’s ongoing depreciation against the dollar.
Import clearance costs are greater, which puts further strain on already challenged enterprises and makes it harder for them to stay afloat.
The weaker naira forced manufacturers and importers of finished goods to continue spending more to bring commodities into the country, which resulted in a rise in customs duties.
The naira has been volatile since it crossed the N1,000 threshold to one dollar at the official market in December 2023. As of Monday, it was trading at N1,900/$ on the parallel market and N1,506.352/$ at the official market.
To clear imported goods at the port, the Nigeria Customs Service has accepted the official foreign currency rate set by the Central Bank of Nigeria.
Due to the high exchange rate used to calculate customs import tax at the port—which has increased by 51.3 percent since January 2024 and by 86.8 percent since FX reforms—large import duties have been the result.
This implies that to clear their goods at the port, manufacturers and importers are now spending more money.
According to Tony Anakebe, a licensed customs agent, a 20-foot container of pharmaceuticals is now cleared with N12 million from N5 million and a 40-foot container of pharmaceuticals that was cleared for N7 million by this time last year when the exchange rate for customs duty was N422.30$ is now cleared for N25 million.
This, he claimed, explains why today’s medications, which are subject to a 20 percent tax and zero duty, are so expensive.
According to Anakebe, importers are raising prices to offset their costs after lowering their import volume due to the high cost of importation.
Akinto, an importer, stated on his X handle, @Onyeka01, that a 40-foot container that was cleared in Onne Port in August 2022 for N7 million has now been cleared for N18 million.
The pricing of the completed goods on the shelf is increased by these expenses. Nigerians are willing to pay more due to their country’s reliance on imports, poor purchasing power, and rising inflation.
The National Association of Government Approved Freight Forwarders’ national secretary, Kingsley Igwe, stated that because fluctuations in the currency rate affect businesses, it is improper for the apex bank to let them.
He claims that other nations use benchmarking or hedging of rates at a specific threshold so that businesses are not impacted by an increase in the value of the dollar.
Igwe attributed Customs’ adoption of the volatile foreign exchange rate to the yearly revenue targets set by the government.
He stated that although Customs is primarily a trade facilitation and duty-collection agency rather than a revenue-generating organization, it will find ways to make up any loss.
According to Igwe, trade volume has declined since COVID-19. To meet the goal of generating over N5 trillion in revenue by 2024, the current Customs management has partnered with the CBN to permit fluctuations in the exchange rate for paying import duties, which benefits Customs.
Igwe stated: “This implies that Customs would continue to declare enormous revenue to the detriment of businesses, even in the face of a slow volume of trade. Investor confidence is being impacted by the shifting FX rate, hence CBN ought to benchmark or hedge it for duty payment purposes.”
“The shifting FX rate for duty payment makes clearing costs in Nigeria predictable in a retrogressive manner, which is bad for Nigeria’s logistics performance index rating.”
Concurrently, the CBN last weekend authorized the import duty calculation to be done using the currency rate in effect at the time Form M was submitted.
The choice to use the FX rate on form M for determining import duty, according to the CEO of the Center for the Promotion of Private Enterprise Muda Yusuf, is commendable as it will lessen the ambiguity that now surrounds imports.
The larger and more concerning issue, he claimed, is that the apex bank’s action did not address the prohibitively high cost of clearing cargo at the ports, which has increased by more than 40% in the last two months.
According to him, “The high exchange rate for import duty assessment is exacerbating the already high inflation, raising production and operating costs for manufacturers and other businesses, exacerbating the crisis caused by the cost of living, and endangering thousands of jobs in the maritime sector.”
To lessen the current burden, Yusuf proposed pegging FX for paying customs charges at N1,000 to the dollar.
