Achieving A Greener Nigeria: An Attempt By The 2023 Fiscal Policy Measures

By Izuchukwu Gideon Okpara with Musa Kalejaiye

1. Background

Similar to several other countries, Nigeria is making an effort to go “green”. Although it may be argued that Nigeria and other African countries have minimal contribution to greenhouse gas emissions and the depletion of the ozone layer,[1] nevertheless the burden to save the planet is for all continents to bear. Commendably, Nigeria has consistently shown good faith towards climate change initiatives.

Among other bold steps, Nigeria is committed to achieving net-zero emissions by 2060.[2] Recent policies and laws have equally been sensitive to climate change given Nigeria’s commitment. For instance, the Climate Change Act 2021 introduced a carbon tax, emission trading and other environmentally-friendly initiatives. Also, the Energy Transition Plan prioritizes the use of renewable energy products over conventional fossil fuels. These, among other environmentally friendly steps such as Host Communities Development Trust Fund under the Petroleum Industry Act and relevant subsidiary legislations,[3] mirror Nigeria’s commitment to achieving net-zero emissions by 2026.

While these efforts are applaudable, there is no prize for guessing that there is still a need for improvement, especially given that Nigeria’s climate change targets and strides are considered “almost sufficient”.[4] In an attempt to consolidate these erstwhile and existing efforts, Nigeria’s 2023 Fiscal Policy Measures (FPM)[5] introduced two new Green Taxes – Excise Duty on Single Use Plastics (SUPs) and Import Adjustment Tax (IAT) levy on Motor Vehicles of 2000cc and above. In this article, we will consider these new introductions given compliance obligations for relevant entities and persons, exceptions, shortcomings and recommendations on the way to go.

2. FPM and Achieving a Greener Nigeria

Dated 20th April 2023, the FPM was approved by the Federal Government of Nigeria and it is expected to take effect from 1 May 2023, save for some specific provisions with otherwise different effective dates.[6] To avoid conflict with pre-existing 2022 FPM, the 2023 FPM expressly asserts its superiority to the 2022 FPM.[7] Meanwhile, in addition to other objectives, the FPM also prioritizes Nigeria’s commitment to climate change adaptation and mitigation of environmental degradation through the introduction of two new green taxes earlier mentioned and would be examined in subsequent paragraphs.

Import Adjustment Tax (IAT) Levy on Motor Vehicles of 2000cc and Above

With an aim to regulate emissions from motor engines, the FPM levies a 2% tax on vehicles with 2,000cc – 3999cc engine size and a 4% tax on motor vehicles with engine sizes from 4000cc and above. These taxes are applicable for 2023 and 2024. Importers of these categories of motor vehicles are therefore under obligation to pay these taxes, effective from 1 May 2023 till 2024. However, the relieving news for the taxpayers here is that this IAT does not apply to motor vehicles with engines below 2,000cc; mass transit buses; electric vehicles; and locally manufactured vehicles.

Excise Duty on Single-Use Plastics (SUPs)

Simply put, SUPs are goods commonly referred to as “disposables” for the reason of their instant and one-off use. Due to the convenience and commonness of their usage, SUPs contribute largely to environmental pollution. Thus, further on green taxes, the FPM impose an excise duty on SUPs at a 10% ad-valorem rate. Particularly, the SUPs covered in this tax bracket are plastic containers, films and bags, and the liable persons are importers of these products. This tax is effective 1 June 2023.

3. Matters Arising – The Case Against New Green Taxes under the FPM

The green taxes introduced by the FPM are shrouded in uncertainties as regards implementation and the utilization of generated funds. Also, the legal basis is contentious. To start with, after stating the rates and scope of the new green taxes, the FPM left a vacuum as regards the administration of these taxes. Hence, when to pay, applicable tax base and penalty(ies) for non-compliance are left unaddressed. Furthermore, there is no provision detailing how generated funds will be used or channeled towards achieving Nigeria’s climate commitments.

In addition, there appears to be a usurpation of National Council on Climate Change (NCCC) powers as vested by the Nigeria Climate Change Act. The NCCC is empowered to recommend legislative, policy, and other measures for climate change adaptation, mitigation and related activities in Nigeria.[8] However, the FPM is a consequence of an act of the Presidency – the President and the Federal Ministry of Finance. Although the motive behind the FPM is in order, nevertheless there are questions hovering around its due process.

The Import Adjustment Tax has received negative reactions too. According to the Centre for the Promotion of Private Enterprise (CPPE), the IAT could significantly hurt the economy. They believe that it is insensitive of the policymakers to levy such high import duty on vehicles not minding the unavailability of a mass transit system in place.[9] It is noteworthy that these taxes are equally not imposed through the backing of substantive law or delegated legislation, and the FPM does not clarify this. Interestingly, the same FPM asserts that the basis for the taxes on telecommunication services is the Finance Act 2020. It is also noteworthy that the FPM is yet to be gazetted till date.

4. Drawing The Curtains and Forging Ahead

No doubt, the goals and aspirations of the FPM are admirable. However, to better achieve a purpose, there is the need to engage stakeholders, particularly on how to fashion out an implementation framework. If poorly implemented, the nation runs the risk of hurting its economy as predicted by the CPPE and the Manufacturers Association of Nigeria (MAN).[10]

Moreover, it is recommended that clarity should be provided on the legal basis for the green taxes. It is argued that the Policy is a usurpation of National Council on Climate Change (NCCC) powers as vested by the Nigeria Climate Change Act as stated under Part 1, sections 1 and 2 of the 2021 Act. The NCCC is empowered to recommend and implement legislative, policy, and other measures for climate change adaptation, mitigation and related activities in Nigeria. In order to avoid conflict, this policy may be implemented through a collaborative effort with the NCCC.

Finally, in order to build public confidence and encourage self-compliance, the use of the funds generated from the green taxes should be made known. Nigeria is currently struggling to achieve its electric energy demands in the midst of the enormous availability of natural resources. These funds generated from the enforcement of this Policy should be used to boost developments in investment and technology in green energy, and the FPM should also be gazette to avoid any further legal lacunae.

Should the issues surrounding the commendable initiatives of the FPM be well taken care of, we reckon that it would count greatly towards achieving a greener Nigeria.

Izuchukwu Gideon Okpara and Musa Kalejaiye are Managing Associate and Associate respectively at Alliance Law Firm, Lagos, Nigeria.

[1] African Development Bank Group, ‘Climate Change in Africa’ < https://www.afdb.org/en/cop25/climate-change-africa> accessed 31 May 2023.

[2] Nomvuyo Tena, ‘Nigeria Commits to Net-Zero Gas Emissions by 2060’ (ESI Africa) < https://www.esi-africa.com/energy-efficiency/nigeria-commits-to-net-zero-gas-emissions-by-2060/> accessed 31 May 2023.

[3] Nigeria Upstream Petroleum Host Communities Development Regulations, 2022 and Host Communities’ Development Trust Implementation Template.

[4] Climate Action Tracker, ‘Nigeria Updates’ < https://climateactiontracker.org/countries/nigeria/#:~:text=The%20CAT%20rates%20Nigeria’s%202030,could%20be%2C%20with%20moderate%20improvements.> accessed 31 May 2023.

[5] Circular – HMFBNP/MDAs/CIRCULAR/2023 FP/04.

[6] This includes excise duty on alcoholic beverages and tobacco; and excise duty on SUPs which are to take effect rather from 1 June 2023.

[7] Ibid 5

[8] Section 4 (g), Nigeria Climate Change Act, 2021.

[9] https://www.icirnigeria.org/2023-fiscal-policy-measures-will-hurt-nigerias-economy-says-cppe/

Credit:TNL