The federal government has been advised by the International Monetary Fund (IMF) to eliminate subsidies for petrol and electricity when the social safety programme has been improved and inflation has decreased.

In a paper titled “Nigeria: 2024 Article IV Consultation,” the IMF made this revelation.

The proposal came after Nigeria’s inflation rate increased sharply, from 31.70 percent in February 2024 to 33.20 percent in March 2024.

According to the IMF, an improved social intervention programme that the federal government of Nigeria created with assistance from the World Bank may benefit roughly 15 million households, or 60 million Nigerians.

“The authorities have recently approved an enhanced social transfer mechanism developed with World Bank support, and some initial payments have been made,” IMF said.

“In response to governance concerns, the authorities automated and digitalized the system to build a robust mechanism that delivers swift and targeted support to vulnerable households, some 15 million households or 60 million Nigerians potentially benefit from the scheme.

“Once the safety net has been scaled up and inflation subsides, the government should tackle implicit fuel and electricity subsidies.”

According to the IMF, the subsidies are costly and poorly targeted, with higher-income groups benefiting more than the vulnerable.

IMF also said with pump prices and tariffs below cost-recovery, subsidy costs could increase to three percent of gross domestic product (GDP) in 2024, compared to one percent of GDP in 2023.

IMF said its staff projected a higher fiscal deficit than anticipated in the 2024 budget, adding that “higher implicit” fuel and electricity subsidies would drive the increase.

The federal government had projected N9 trillion budget deficit for this year.

Aside from the subsidies, IMF said other drivers are lower oil and gas revenue projections, continued suspension of excise measures included in the medium-term expenditure framework (MTEF), and higher interest costs.

“Staff factors in an under-execution of capital expenditure in line with past outcomes and estimates an FGN deficit of 4.5 percent of GDP relative to the 2024 budget target of 3.4 percent of GDP,” IMF said.

“For the consolidated government, this implies a projected deficit of 4.7 percent of GDP in 2024, compared to 4.8 percent of GDP in 2023 measured from the financing side, which is appropriate given the large social needs and factoring in a realistic pace of revenue mobilization.

“Over the medium-term, staff projects consolidation in the non-oil primary deficit. With rising interest costs, government debt stabilizes towards the end of the projection period.”

On April 3, the Nigerian Electricity Regulatory Commission (NERC) approved an increase in electricity tariff for customers under the Band A category to N225 per kilowatt-hour (kwh), from N66, to reduce electricity subsidy.

However, on May 6, electricity distribution companies (DisCos) said the tariff of Band A customers has been reduced to N206.80 per kwh.

On May 29, President Bola Tinubu announced petrol subsidy was gone, however, on August 15, 2023, TheCable reported the president was considering a “temporary subsidy” on petrol.

On April 15, Nasir el-Rufai, former governor of Kaduna state, said the federal government is spending more on petrol subsidy than before.

Also, Gabriel Ogbechie, chief executive officer (CEO) of Rainoil Limited, on April 17, said the federal government now spends N600 billion on petrol subsidy monthly.

Taiwo Oyedele, chairman of the presidential fiscal policy and tax reforms committee, says the federal government is working on a system that will provide tax relief to 95 percent of the informal sector.

Oyedele delivered a speech on Sunday during the committee’s last meeting in Abuja.

According to Oyedele, the idea is to free companies with annual revenue of N25 million or less from the different levies that are impeding their development.

‘’So, we think that 95 percent of the informal sector should be legally exempted from all taxes; withholding tax, company income tax, even payee on their staff,” he said.

‘’We’re using data to inform our decisions. Currently, if you earn N25 million a year or less, you don’t have to pay company income tax, you don’t have to worry about VAT.

‘’We think that the informal sector are people who are trying to earn legitimate living, we should allow them to be and support them to grow to a point where they can then have the ability to pay taxes.”

Oyedele said the new reforms being proposed would focus on the top 5 percent of that sector, the middle class, and the elite for taxes.

The tax expert said the committee is drafting the laws to effect the necessary changes in the fiscal policy and tax reform ecosystem of the country.

The new laws, he said, would ensure that reviews become sustained by all governments coming in, adding that “we don’t want this whole effort to go down the drain, after one or two years”.

On compliance, the committee chairman urged

all stakeholders to fully cooperate with the government in implementing a new fiscal and tax policy that would be used for the general good of the citizens.

“We think that the days of being above the law in paying taxes are over. The same thing we’re saying to our leaders, whether they are elected or appointed,” he said.

“We think they have to lead by example by showing that they have paid the taxes, not only on time, but correctly to the lawful authorities as contained in the various laws.”

Oyedele said some of the taxes complained about by Nigerians are those already in the constitution, which the committee has looked at and called for their review.

He said the committee report would be made to pass through the normal process of legislation in order to give it the full legal backing.

“So, our expectation is, as we progress now from ideation, proposal to implementation, you’ll see less and less of those issues and then you’ll see harmony in the direction of the fiscal system,” he said.

‘’Not only in the number of taxes we collect, you will also see an improvement in how those monies are being spent.

Oyedele added that the committee has been working with the sub-nationals and the local government councils in its task of harmonising the taxes into a single-digit system.

“So, we’re convinced, and that’s what the data tells us, that the right path we need to follow is the path where we repeal many of these taxes, harmonise whatever is left,” he said.

“We think we can keep that within single digits across local, state and federal governments combined, and then improve the efficiency of collecting those taxes.

The tax expert said he is convinced that Nigeria needs to increase the threshold of exemption for small businesses, for low income earners “because if they cannot make ends meet, the last thing you want is someone asking you to pay tax”.

The organised labour will today (Monday) commence protests across the nation over electricity tariff hike and removal of subsidy from the power sector by the Federal Government.

According to The Punch, the National Treasurer of the Nigeria Labour Congress, Olatunji Ambali and the National Deputy President of the Trade Union Congress, Tommy Etim, who confirmed the planned protests insisted on the reversal of the tariff hike to the subsidy era.

The labour action is expected to lead to the shutdown of the Abuja headquarters of the Nigeria Electricity Regulatory Commission, the Ministry of Power and state offices of power distribution companies.

The NERC announced the hike in the electricity tariff for Band A customers at a press briefing in Abuja on April 3, revealing that those affected would pay N225 per kilowatt-hour, up from the previous rate of N68/kWh.

The hike represented a 240 percent increase.

The development marked the removal of subsidy from the tariff of customers in the Band A category, who constituted about 15 per cent of the total 12.82 million power consumers across the country.

Based on the tariff hike, the Federal Government said it would save N1.5tn.

The government stated that the decision took effect on April 3, 2024, adding that Band A customers would enjoy up to 20 hours of power supply daily.

However, the House of Representatives, organised labour, the Nigerian Bar Association, Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture, electricity consumers and civil society organisations, demanded a reversal of the hike to the subsidy era tariff.

The House called on the NERC to suspend forthwith the implementation of the new electricity tariff nationwide.

But justifying the increase during an investigative hearing held by the Senate Committee on Power, Minister of Power, Adebayo Adelabu, argued that there would be a nationwide blackout in the next three months if the increase in electricity tariff was not implemented.

He said this after the Senate Committee, chaired by Senator Enyinnaya Abaribe, rejected the new tariff regime.

“The entire sector will be grounded if we don’t increase the tariff. With what we have now in the next three months, the entire country will be in darkness if we don’t increase tariffs. The increment will catapult us to the next level. We are also Nigerians.  We are also feeling the impact,’’ Adelabu declared.

However, the NLC and the TUC insisted on the reversal of the tariff hike even as they expressed dissatisfaction with the epileptic power situation in the country, saying that it is affecting economic growth.

Speaking at the International Workers Day celebration in Abuja on May 1, the NLC President, Joe Ajaero, submitted that the government cannot fix tariffs in a sector that was already deregulated.

The TUC President, Festus Osifo, also faulted the hike, saying, “It is unethical to force Nigerians to pay higher tariffs for non-existent electricity. Estimated billing is an extortion and daylight robbery against Nigerians.”

The unions handed down a one-week ultimatum and threatened to picket NERC offices should a total reversal of the tariff to the subsidy era was not done. The ultimatum by Labour expired on Sunday (yesterday).

In a move to appease the unions, the NERC last week Monday ordered a downward review of the tariff from 225/kWh to 206.8/kWh, representing approximately an 8.1 percent reduction.

The commission attributed the cut to the relative appreciation of the naira in the official foreign exchange window.

• NERC Cuts Hike

NERC also said that the revision of the 2024 Multi-Year Tariff Order for Band A customers led to a reduction in tariffs for all discos.

In a statement announcing the cut, the commission said, “Under the tariff methodology adopted by the Nigerian Electricity Regulatory Commission, a revised tariff order covering the month of May 2024 has been issued by the commission to the 11 electricity distribution companies.

“The commission has considered changes in the macroeconomic parameters over the preceding month of April 2024 and especially the appreciation of exchange rates – consequently the commission has approved a downward review of end-user tariffs for Band “A” customers from NGN225/kWh to NGN206.8/kWh.

“The commission reaffirms its commitment to providing a balanced and effective regulatory regime serving the needs of the Nigerian Electricity Supply Industry.”

The National Treasurer of the NLC, Ambali, On Sunday said, the union had fully mobilised its members and affiliates for the protest against the tariff increase.

“We commend the Federal Government on halting the cyber security levy; however, labour is fully mobilised for the electricity tariff hike protests across the country.”

Corroborating Ambali, the National Deputy President of the TUC, Etim, noted that the organised labour was ready for the nationwide protests at the NERC offices.

“Of course, Labour is fully mobilised for the protests which will start tomorrow (Monday.)

Also, a top official of the NLC, who spoke on the condition of anonymity because he was not authorised to speak on behalf of the union, stated, “Picketing would start today not only at the offices of the National Electricity Regulatory Commission but also in all the distribution companies across the nation.”

He said the mobilisation of workers and affiliate unions was ongoing, adding that meetings were held on Saturday and Sunday by the NLC and TUC to fine-tune strategies for the labour action.

• Labour Mobilises

“We enjoin the civil societies, organisations, market women, and students to join organised labour because it is a collective battle, and we are all collectively being afflicted by the wicked policies of the government,” he noted.

“Collectively, we can push that back. As you can see, we have fought the issue of the cyber security levy and they have agreed to withdraw it.

“Together, if we fight this problem, one by one we will compel government’s actions that are anti-people to be pushed back. Don’t leave it to the NLC and the TUC but join us at the barricade so that together, we can compel the government to do the needful,” he appealed.

Meanwhile, civil society groups have endorsed today’s (Monday’s) showdown, saying they were committed to any action that could ameliorate the sufferings of Nigerians.

The Chancellor of the International Society for Social Justice and Human Rights, Dr Jackson Omenazu, said his organisation would join the protests called by the labour leaders.

“Look at the sufferings of Nigerians; the government should try to put up policies that will ameliorate the sufferings of the people and not increase their sufferings. The  NLC and the TUC have our backing 100 per cent,” he said.

The Civil Society Legislative Advocacy Centre also expressed support for the picketing of the NERC and the power distribution firms.

The Executive Director of CISLAC, Mr Auwalu Rafsanjani, affirmed, “Any protest that is going to help Nigerian people to come out of the sufferings that Nigerian government policies have put the people, we will join.’’

Speaking further, he added, “In fact, CSOs don’t need to wait until Organised Labour calls for protest. We have been calling for a review of the policies of government negatively affecting the people: inequality, poverty, and corruption.

“We also support the NLC and the TUC on this move. Nigerian people have suffered enough in the hands of bad government and leaders who appear to be promoting inequality, poverty, corruption, and lack of comfort and social justice.’’

“We definitely as civil society organisations want to work with every like-minded person to ensure that these problems are addressed. Many Nigerians cannot afford good meals, accommodation, and education. This is welcome and we hope that the government will address this problem,’’ Rafsanjani noted.

The Executive Director of the Rule of Law and Accountability Advocacy Centre, Okechukwu Nwanguma, said he was in support of the protests, insisting that the government should address the issues raised by organised labour.

“We are in support of the call to protest the tariff hike by the NLC and the TUC,” he said.

Credit: The Punch