African Outlook Online

Business, Economy, Money & Investment News

Vehicle Prices Rise as 70% Tariff Kicks Off July 1 in Nigeria

Vehicle Prices Rise as 70% Tariff Kicks Off July 1 in Nigeria


From Monday, a new car that was sold for N3 million before the Federal Government introduced the new automotive policy may now cost N5.1 million.  The full implementation of the policy which begins Tuesday (July 1) has put 70 per cent tariff on vehicles.

Under the new automotive scheme, the Federal Government in 2013 raised the duty and levy payable on imported new and used cars from 20 per cent to 70 per cent, pointing out that the initiative was aimed at encouraging local production of automobile.


But experts and various stakeholders have repeatedly cautioned the Federal Government against the danger of implementing the policy without first putting in place necessary infrastructure such as uninterrupted electricity supply and good road networks.  They said that without adequate facilities, the cost of production may push the cost of locally assembled cars beyond the reach of most Nigerians.


The Public Relations Officer of Tin Can Island Command of Nigeria Customs Service (NCS), Chris Osunkwo, confirmed the implementation of the policy as from today. The Guardian’s enquiry Monday revealed that under the policy, the NCS would publish the prices of new vehicles yearly.


Information made available by the National Automotive Council explained that Fully Built Units (FBU) cars falling under H.S.Code 87.03 shall attract a duty of 35 per cent and 35 per cent levy.


NAC said: “All FBU import (except used vehicles) with Bill of Lading dated not later March 31, 2014 and arrival date not later than June 2014 will pay the old rate, irrespective of the dates of opening of form ‘M’ and the letter of credit.


“Used vehicles will be imported at 35 per cent without levy till June 30th, 2014 (Now December 31, 2014) renewable as required by the Ministry/NAC, to manage market conditions.


“Fully Built Unit (FBU) Commercial vehicles falling under H.S. Code 87.02, 87.04, 87.06, 87.16, shall attract 35 per cent duty without levy.  Fully built tractor under H.S. Code 87.01 shall attract 0 per cent duty without levy, until local capacity is ascertained by NAC.”


On the other hand, Local Assembly plants shall import their Completely Knock Down (CKD) at zero per cent duty, Semi Knocked Down (SKDI) at five per cent duty and Semi Knocked Down (SKD11) at 10 per cent import duty.  According to NAC, all machinery and equipment imported for the purpose of vehicle assembly shall attract zero per cent import duty and be free of Value Added Tax (VAT).


Already, the first phase of the policy involving 35 per cent duty increase has come into effect while the second phase of 35 per cent increase in levy for new cars is expected to commence today.


The President, National Council of Managing Directors of Licenced Customs Agent (NCMDLCA), Lucky Amiwero, said recently that the policy was capable of encouraging diversion of cargoes to neighboring countries.  Also, a maritime economist and Executive Director of ABN Consults, Harrison Agada, recently advised the Federal Government to halt the implementation of the policy in the interest of the economy.


Agada explained that contrary to claims by senior government officials, the implementation of the new import duty would place the cost of vehicles beyond the reach of about 90 per cent of Nigerians, increase the cost of transportation by at least 50 per cent and increase inflation before the end of the year.


He said: “I believe the new automotive policy will be bedeviled by several problems. First, there is a huge gap between demand and local capacity. Local production capacity of automobiles by all the assembly plants in the country today stands at a pathetic 45, 000 units per annum while demand stands at 800,000 units per annum.


“Secondly, the price of locally made vehicles is way out of the reach of average Nigerians and this is mostly as a result of the collapse of public infrastructure including power supply. Imported second hand cars have an average price of N1.5 million while the cheapest locally assembled car sells for N3.5 million – more than twice the price. It is just too expensive to manufacture in Nigeria.”


Agada said infrastructural challenges including poor electricity supply and bad roads would make it impossible to produce enough cars locally for the Nigerian market.  He also said that locally assembled cars could not compete with imported ones as regards prices.


He said: “The imported vehicles will still dominate the market place. If government makes it too difficult to bring them into the country legitimately, importers will do so through unapproved means. And with over 1,400 illegal entry routes, over 80 poorly manned borders, smuggling will boom.


“There is a precedent in the obnoxious rice policy that has cost this nation well over N300 billion in one year – an amount that would have been sufficient to upgrade and fix some bad roads in the country or build more hospitals or more schools.  It may interest the president to know that if his policy is implemented this year, over 600,000 vehicles will be smuggled from the ports of neighboring countries mainly Benin Republic. Smugglers are also guaranteed good returns.


“Very soon, RORO ships will be coming to Nigeria half-empty. Even specialised RORO terminals will suffer huge revenue losses and may need to rework their business models. Port workers will also suffer the consequences of this policy as there will be less jobs to do at the port.”


In a petition to President Goodluck Jonathan and other agencies of government, Amiwero explained: “The same policy was introduced by the Federal Government in the 1980’s, which resulted in a massive diversion of Nigeria-bound vessels to Republic of Benin (Cotonou Ports) due to the requirement of Import Duty Report (IDR) for all used vehicles and the restriction of age of all vehicles to five years, which include all vehicles (buses, trailers, trucks, vans and motor cars.)”


He added: “The policy encouraged massive diversion of vessels to Benin Republic, which was an economic advantage that assisted the government in the development of their nation’s shipping infrastructure and the movement of Nigeria-bound cargoes to Cotonuo Port up till date."