Nigeria Customs Service increases free-on-board cost to importers

The Gross Domestic Product (GDP) is a metric to assess a nation’s wealth and economic productivity.

The GDP consists of investment in capital and developmental goods, government productive expenditures, domestic consumption of local and foreign goods and services, and trade balance (the premium of exports over imports made by the country).

International trade has long existed and contributed to the development of communities, localities, states, nations, and regions capitalising on their respective comparative and absolute advantages in sourcing, production, distribution, scaling, and expansion.

Most global regional trade leaders are consistently evolving, strategising, digitising, increasing trade convenience, and forming partnerships and collaborations to enhance trade.

Tariffs, levies, and duties are costs associated with international trade, eventually seen in the final price of the goods and services billed to customers. Nigeria has the largest economy and the largest deep-sea port in Sub-Saharan Africa, which reinstates her ability to recognise more savings on international trade from economies of scale and efficiency of operations.

Players in international trade across Nigeria have oftentimes resorted to carrying out international trade in goods from neighbouring countries like Benin, Togo, and Ghana, as it is relatively cheaper than conducting the foreign goods trade from Nigerian ports or exit points, even after considering the cost of logistics to the final destination or from the origin of those goods.

The restrictions across the Nigerian borders are not fully effective, as less than 10 per cent of the channels through which goods leave or get into Nigeria are designated as borders.

Not all the goods produced in Nigeria for international consumption or goods produced by manufacturers in other countries and consumed in Nigeria are recorded in the Nigerian foreign trade in goods statistics due to issues of smuggling, human trafficking, banditry, illegal ammunition trading, drug trafficking, money laundering, and other cross-border-related crimes.

The Nigeria Customs Service Act 2023, signed into law on 20 April 2023 by the 15th president of Nigeria, Muhammadu Buhari, and its official gazette dated 9th June 2023, repealed the Customs and Excise Management Act (CEMA), stipulates some reformations in the administration and management of the Nigeria Customs Service. A high-level review of the new developments seen in the NCS Act 2023 with 282 sections across 33 parts consists of the following:

• An introduction of a governing board charged with policy and guidelines formulation, regulation, strategic plans review, active collaboration, synergy, and discharge of the Act mandate.
• An introduction of a management committee with key officials to supervise, coordinate operations, and advise the board on technical issues, policies, customs matters, practices, revenue growth, and disciplinary regulations. They are also saddled with ensuring the full implementation of the Nigeria Customs Service Act 2023.
• Sustainable income generation in line with best practices from grants, aids, donations, appropriation, extra-budgetary allocation, and cost-based user fees deliberated by the governing board and approved by the federal government. A minimum of 4% on the fee-on-board value of imports has resulted in debates, tensions, issues, and deliberations after the NCS spokesperson Abdullahi Maiwada stated NCS’s actions in driving its implementation.
• Application and withdrawal of advance ruling on goods tariff classification, regulatory compliance, exemptions, valuation methodology, fees, quotas, and other issues. Rulings of general applications are publicised across digital platforms effective within 30 days after notice or effectively if more appropriate.
• Inculcating appropriate controls for compliance with provisions of the Act within customs control zones. The comptroller general can establish a temporary customs control zone for relief operations if higher value can be obtained from operations in the temporary zones than from the conventional zones.
• Extension of the transaction value of goods to account for the price, including all payments, as a condition of the sale of imported goods. This all-encompassing transaction value rule will not be considered in related party transactions.
• Applying preferential rules-of-origin and non-preferential rules-of-origin to goods originating from the country where the last substantial transformation occurred.

Policies are not designed just to be kept in the archives; rather, they are carefully laid out to be implemented and drive the achievement of efficiency, increased resource utilisation or output, and economic growth and development. Instances could occur where implemented policies encounter challenges, struggles, setbacks, oppositions, and disapproval from the stakeholders considered during the policy design stage.

The revenue from NCS increased by 90.4% year-on-year to ₦6.1 trillion from ₦3.21 trillion achieved in 2023. October 2024 was remarkable as it recorded the largest monthly revenue of ₦603.17 billion.

A significant portion of this growth can be attributed to the 40.9% Naira devaluation recorded in the year 2024, as the customs exchange available on the Federal Government of Nigeria Single Window for trade is sourced directly from the Nigerian Autonomous Foreign Exchange Market under the leadership of the CBN.

From recent discussions with importers and exporters of goods using Nigerian ports, the NCS unveiled several developments in 2024, such as the time release study for data to assess the efficiency of operations, the locally developed B’Odogwu, a locally developed Unified Customs Management System, and other developments such as the Authorised Economic Operators (AEO) programme.

There are still more opportunities the NCS can harness to make Nigeria the preferable destination for sub-Saharan trade through improvement in the goods clearance process, ports administration, technology adoption, and reduction in the number of days goods stay in the port before being onboarded or received by the final consumers, among other issues.

An increase in the minimum administrative charge of 1% of FOB value to a minimum of 4% of FOB value of all imports derived from the approved electronic Form M will make the charges at par with international best practices, enhance revenue generation for Nigeria Customs Service and IGR to the Federal Government to fund the 2025 budget deficit. The 16th president of the Federal Republic of Nigeria recently proposed an increase in the 2025 budget from ₦49.7 trillion to ₦54.2 trillion as the federal government expects to generate additional revenue of ₦1.4 trillion from FIRS, ₦1.2 trillion from NCS, and ₦1.8 trillion from other government agencies.

An increase in revenue generation from NCS is a welcomed idea, as several avenues can be considered to drive the increase in revenue, such as increasing the number of cargoes cleared, ships berthing, reducing revenue leakages, and process automation, reducing bureaucracy, as these and others will not likely impact the final purchase price paid by the final consumer.

Corporate entities are established to maximise shareholders’ wealth and will surely want to make a margin on the sales of goods and services. Hence, increasing the custom FOB import charges will also increase the final price to be paid by the final consumer.

The impact of implementing the increase should be carefully considered, as it will have a ripple effect on imported inflation in Nigeria, which is more associated with cost-push factors than demand-pull factors.