FX Crisis: FG may impose excise tax on parallel market transactions

The federal government may soon begin the imposition of excise tax penalties on foreign exchange transactions done outside the official market window as part of the moves to discourage multiple exchange rates in the country.

This is one of the twenty recommendations put forward by the Presidential Fiscal Policy and Tax Reform Committee, established by President Bola Tinubu in July to evaluate and provide guidance on reforms aimed at shaping Nigeria’s fiscal policy and tax system.

The Tax Committee, led by Taiwo Oyedele, proposed a set of “quick win” recommendations.

These recommendations aim to tackle urgent economic concerns, such as exchange rate management, the consequences of removing fuel subsidies, controlling inflation, and promoting economic growth.

One of these suggestions is the introduction of an excise tax on foreign exchange transactions that occur outside the official market.

Taking to his X (Twitter) account, Oyedele highlighted the key developments from their findings presented to the President.

He said that the

• “Imposition of excise tax on foreign exchange transactions outside the official market” is part of what was proposed to the federal government.”

Highlighting some other developments that may be implemented in the foreign exchange market, Oyedele stated the recommendations are meant to promote transparency, encourage ease in business transactions as well enforce the single exchange rate system in the sector. The recommendations include,

• “Permit the payment of taxes on foreign currency-denominated transactions in Naira for Nigerian businesses.
• Digitalise Nigeria’s fx regime and discourage speculative demands and hoarding of fx in cash.
• “Discontinue the fx verification portal and requirement for Certificate of Capital Importation and export proceeds restriction.”

Suspension of Multiple Taxation and Remove Impediments

As part of the recommendation from the “Quick Win” document, the federal government is also aiming to reduce the number of taxes collected at the federal, state, and local levels of government.

According to Oyedele, this move is said to ensure the removal of impediments from small and middle-scale businesses as well as bolster economic growth and development in the country.

It is important to note that there are over 60 multiple tax systems currently in operation across different tiers of government, most of which are targeted at the informal sector resulting in a constraint in the growth of SMEs.

The recommendations therefore include the following:

• “Suspension of multiple taxes which place burdens on the poor and small businesses and compensate with windfalls revenue of certain agencies.
• “Tax break for private sector in respect of wage increases to low-income earners, transport subsidy and net increase in employment.
• “Grant waiver of penalty and interests on the condition of full payment of outstanding tax liabilities on or before 31 December 2023.
• “Remove impediments to global employment opportunities for Nigerians based in Nigeria.”

Other recommendations include tax waivers for diesel, CNG, and renewables as well as a comprehensive review of tariffs on the 43 items unbanned from accessing forex in the official market and a fiscal policy review of other items prohibited for imports.

Backstory

Earlier, Nairametrics reported President Tinubu has directed the implementation of all recommendations by the Presidential Fiscal Policy and Tax Reform Committee across Ministries, Departments, and Agencies (MDAs) of the federal government.

This directive followed the submission of the committee’s report on the ‘quick win’ document by its chairman, Taiwo Oyedele, at the State House in Abuja.