The Chairman of the Presidential Committee on Fiscal Policy, Taiwo Oyedele, has explained the reasons behind the federal government’s decision not to approve a fixed or pegged exchange rate for calculating Customs import duties.
In a statement on Tuesday, Oyedele explained that the president cannot simply sign an executive order to implement a fixed exchange rate for Customs duties, as the recently repealed and reenacted 2023 Customs Act mandates a market-driven exchange rate.
Oyedele noted that his committee is working to ensure that the law is modified in the near future to allow for exchange rate adjustments.
He emphasized that this modification will need to pass through the National Assembly and highlighted the government’s recognition of the importance of such interventions in improving the ease of doing business in the country.
“The other point that my brother raised that our recommendation that the custom service should use a fixed exchange rate that is much lower than the actual rate hasn’t been implemented. And it’s a number of factors.
“The biggest one being that the Nigeria Custom Service was repealed and reenacted in 2023, which is last year. And in that law, it says that the exchange rate to use for Custom must be the official exchange rate, which means even though we drafted an executive order, the president cannot just sign to override the law.
“We then have to grow through the process of trying to change the language in the law so that when it becomes necessary, maybe later in the future, it will not be as complicated as it is now. But I think there’s a general understanding within government that these interventions are extremely important,” Oyedele said.
Withholding Tax Regulations now Gazetted
Speaking further, Oyedele mentioned that the new withholding tax regulations is now gazetted by the federal government.
He emphasized that the implementation will begin, effective immediately from today (Wednesday) following the approval from all tiers of government.
According to Oyedele, the new regulations are expected to provide some succor for manufacturers as well as small businesses in the country.
“I do have some good news. The good news is that the withholding tax regulation has now been gazetted. The only reason why it hasn’t been published today is because it’s a public holiday. So first thing tomorrow, you’ll see a copy of the gazette.
“And that provides a lot of relief not only for manufacturers, but also for every other businesses in terms of taking away some of the burden about funding their working capital, even their interest rate,” he noted.
What you should know
The fluctuating exchange rate for Customs import duties has posed a significant challenge for participants in the import and export sector.
The exchange rate, typically tied to the changing value of the naira against the dollar, complicates trade planning for manufacturers and importers, forcing them to rely heavily on a replacement cost model.
Additionally, stakeholders like the Manufacturers Association of Nigeria (MAN) have urged the federal government to fix import duties to ensure smoother trade operations within and beyond the country.
Considering the volatility of the naira in the foreign exchange market, a floating exchange rate for Customs duties appears counterproductive to promoting efficient trade.