7.5% VAT charges on diesel will increase landing cost — Iheanacho

Chairman, Integrated Oil and Gas Ltd., Mr Emanuel Iheanacho says the proposed 7.5 per cent Value Added Tax changes (VAT) on imported automotive gas oil, popularly called diesel, would increase its landing costs in the Nigerian market.

Iheanacho said this on Tuesday in Lagos that there was need for Federal Government to review the decision.

On June 20, the Federal Government confirmed that it had commenced the implementation of the payment of 7.5 per cent VAT on diesel.

The officials of the Nigerian Customs Service and Federal Inland Revenue Service said in Abuja that diesel was not exempted from the payment of VAT based on the VAT Modification Order 2021.

The oil and gas expert said, “In regard to whether this cost would ultimately fall, there is no doubt that this tax would in the final analysis be borne by the end consumers of the fuel commodity.

“As to the wisdom of applying the VAT at this time when prices are rising in the face of the decision to discontinue the subsidy on petrol, l would submit that the final word on the matter is an acceptable policy prerogative of the government.

“In any case, we must not lose sight of the fact that the 7.5 per cent VAT charges going into the government’s pocket equates to a net loss of buying power for the citizen diesel consumer,” he said.

“The VAT money in the government’s coffers to be spent on development projects or a more financially empowered citizen with the 7.5 per cent VAT amount conceded to him as additional spending capacity?

“The answer is a political decision.

“Regarding the matter of subsidies on petrol recently discontinued , the removal of the subsidy on petrol is a logical and intuitively reasonable development which time had come.

“The subsidy payments resulted in more distortion and inequity in operation than any good which may have been envisaged,” Iheanacho added.

The former Minister of Interior said that the timing of the application of VAT on diesel could possibly have been deferred to a more auspicious occasion when the incidental cost pressures on citizens would not be so acutely felt.

Recall that in a letter from the Nigerian Customs Service to some of its personnel, on the matter, with reference: NCS/T&T/T/899/217/VOL.I dated June 8, 2023, the service made it clear that VAT must be paid on diesel.

The letter was signed by the Assistant Comptroller-General (Tariff and Trade), Mba Musa, on behalf of the Deputy Comptroller-General (Taritf and Trade).

It read in part, “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.”