The Federal Government of Nigeria has allocated N5.51tn for tax expenditures in the 2023 fiscal year, a 22.07% decrease from the N7.07tn budgeted for 2022, according to the 2023 fiscal framework document.
Tax expenditures refer to departures from the normal tax code that lower the tax burden for individuals or businesses through exemptions, deductions, credits, or preferential rates.
While these expenditures may result in significant revenue losses for the government, they cover crucial areas such as Companies Income Tax, Value Added Tax, Customs Duties, Imports Value Added Tax, Petroleum Profits Tax, and Road Infrastructure Tax Credit Scheme.
In 2022, the tax expenditure budget was N658.08bn for Companies Income Tax, N4.97tn for Value Added Tax, N792bn for Customs Duties, N237.6bn for Imports Value Added Tax, N371.47bn for Petroleum Profits Tax, and N44.26bn for Road Infrastructure Tax Credit Scheme.
The 2023 budget, however, saw a decrease in the Value Added Tax expenditure while the rest of the categories recorded an increase. This decrease comes as the Federal Government plans to introduce more sin taxes and reduce tax incentives in 2023 through the proposed 2022 Finance Bill.
Additionally, the Federal Government has proposed the suspension of tax reliefs and rebates for companies established in locations lacking public infrastructure and providing amenities such as electricity and water for themselves.
As reported by News About Nigeria, between 2019 and 2021, the Federal Government gave tax reliefs and concessions valued at N16.76tn to large companies. As of the end of 2021, 46 companies had benefited from tax incentives and duty waiver schemes, with 186 company requests still pending.
However, the Managing Director/Chief Executive Officer of Cowry Asset Management Limited, Mr Johnson Chukwu, warns that the introduction of new taxes and cuts in tax incentives may negatively impact manufacturers and consumers in Nigeria.
He fears that manufacturers may be unable to pass on the costs to consumers, reducing profitability and investment, or that consumers may struggle with the increased costs due to weak purchasing power.
While the Federal Government’s 2023 budgeted tax expenditures aim to balance the interests of both the government and the public, the potential effects on manufacturers and consumers must also be taken into consideration.
