…govt should focus on improving local refining capacity – suppliers
…VAT could lead to increase in inflation rate
The Federal Inland Revenue Service (FIRS) has issued a letter to diesel suppliers in Nigeria, informing them that all future importations of the automobile gas oil (AGO) or imported diesel product should assess and pay value-added tax (VAT) at the point of entry into the country.
The letter was forwarded by the Assistant Comptroller-General of Tariff and Trade, MBA Musa IN, on behalf of the Deputy Comptroller-General of Tariff and Trade to diesel suppliers.
In the letter, which was dated June 8th, 2023, and addressed to diesel suppliers, it cited an FIRS letter dated 31st May 2023.
What the letter says
According to the letter, the VAT Modification Order 2021 only exempts petroleum products of HS codes 2709.00.00.00 – 2710.19.12.00 from paying VAT. AGO or diesel falls under HS Code 2710.19.21.00 and is not exempted from paying VAT.
The letter also stated 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.
The decision to charge VAT for diesel importations is stated to be in compliance with the VAT Modification Order 2021.
Contents of the letter
“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.”
A surprising development
This development comes as a surprise to many diesel suppliers who have been importing the product without paying VAT for years.
Some of them have expressed their displeasure and confusion over the new directive, saying that it will increase their cost of doing business and affect their profit margins.
One of the diesel suppliers, who spoke pleaded anonymity, confirmed receipt of the letter and stated that they were “engaging” with relevant authorities to avoid paying the tax.
Another diesel supplier, who also preferred not to be named, said that he was worried about the impact of the new directive on his customers and the economy at large. He said that diesel is a widely used product in Nigeria, especially for power generation and transportation.
“Diesel is essential for many businesses and households in Nigeria because of the poor state of electricity supply. If we have to pay VAT on diesel imports, it means that we will have to increase our prices to cover our costs. This will affect our customers who rely on diesel for their operations and livelihoods. It will also increase inflation and affect the economy negatively,” he said.
He urged the government to reconsider its decision and exempt diesel from paying VAT, saying that it would be more beneficial for the country in terms of revenue generation and economic growth.
He said that instead of imposing VAT on diesel imports, the government should focus on improving local refining capacity and reducing dependence on imported petroleum products.
“We have four refineries in Nigeria that are supposed to produce diesel and other products, but they are not working optimally. If the government can fix them and make them work efficiently, we will not need to import diesel or pay VAT on it
We will also save foreign exchange and create jobs for Nigerians,” he said.
Increase in inflation rate
The implementation of a value-added tax (VAT) on diesel imports in Nigeria could potentially contribute to an increase in the inflation rate.
The additional cost imposed on diesel suppliers due to VAT could lead to higher prices for diesel, which is a widely used product in the country for power generation and transportation, especially for businesses.
As a result, businesses and households that rely on diesel may face increased expenses, leading to a potential ripple effect on the prices of goods and services. This, in turn, can contribute to inflationary pressures in the economy.
On the flip side, the implementation of a value-added tax (VAT) on imported diesel in Nigeria could potentially have a positive impact on government revenues. By subjecting diesel suppliers to VAT, the government stands to generate additional income from the taxation of this essential fuel product.
