High taxes weaken consumer spending, experts tell FG

Tax
TaxFILE

Economists have warned that high tax burden on Nigerians will shrink consumer wallets and exacerbate an already high cost of living for Nigerians.

The warning follows recent rate hikes in the services industry attributed to high tax imposition by governments at various levels, according to The PUNCH.

On March 22, Pay TV company, Multichoice, announced new rates for its offerings in Nigeria. The firm said from April 1, that subscribers would pay more for all its bouquets and that its premium package on DSTV would cost N21,000, no longer N18,400.

The increase came days after Nigeria’s consumer protection agency ordered Multichoice to rejig its process to allow subscribers to maintain the same subscription fee for at least a year.

Customers should also be allowed the option of suspending their subscription at least four times a year and Multichoice must also introduce toll-free lines for customers across all networks, the Federal Competition and Consumer Protection Commission, FCCPC, said.

Characteristically, the announcement by the firm did not come without groaning by consumers who felt the price hike would further exacerbate an already high cost of living in the country.

While speaking in an interview with our correspondent, a high-ranking member of staff at Multichoice, who did not want to be named, blamed the frequent rate hikes on excessive taxation by the Nigerian government.

The source said that while the consumers had continued to criticise the firm for perceived anti-competitive behaviour and customer exploitation, much of the blame rested with the government for imposing inordinate taxes on the firm.

According to the source, “People don’t really know what is happening behind the scenes. They blame Multichoice and call us all manner of names. It’s not the company’s fault. The government keeps coming up with all sorts of new taxes or the other. You don’t expect the company not to increase rates when this happens.”

In a related development, Telecommunication companies, earlier this month, had proposed a 40 per cent increase in the cost of calls, SMS, and data to the Nigerian Communications Commission as a result of the rising cost of running a business in the nation.

Based on their proposal, the price floor of calls will increase from N6.4 to N8.95 while the price cap of SMS will increase from N4 to N5.61.

In a letter titled, ‘Impact of the Economic and Security Issues on the Telecommunications Sector,’ and addressed to the National Communications Commission, NCC, the telcos said there had been a 40 per cent increase in the cost of doing business in the nation.

According to them, the telecommunication industry had been financially impacted following the nation’s economic recession in 2020 and the effect of the ongoing Ukraine-Russia crisis.

They said this had resulted in an increase in energy costs, which had raised their operating expenses by 35 per cent.

The letter read in part, “Given the state of the economy and the circa 40 per cent increase in the cost of doing business, we wish to request for an interim administrative review of the mobile (voice) termination rate for voice, administrative data floor price, and cost of SMS as reflected in extant instruments.”

Similarly, e-hailing firms were recently at loggerheads with cab drivers who had insisted on an upward review on the fares charged by various platforms such as Bolt and Uber.

The drivers had argued that while the firms continued to increase percentage charges on every trip, there had been no corresponding increase in the fares to help them cushion the impact of the percentage increase.

In the last few years, the two popular e-hailing firms have increased percentages on fares from 10 and 15 per cent, and to 20 and 25 per cent.

A Bolt driver, who gave his name as Chinedu, while speaking with our correspondent, said the firm had cited increased taxation as the reason behind the percentage hikes.

He said, “It’s because of tax. Government taxes them for every booking that every rider makes. Government has a cut from every ride. These people have to pay their staff. When you look at these factors, you understand why their percentage keeps going up.”

According to a Lagos-based tax and audit firm, PML Advisory, taxes were established by law in Nigeria. By implication, taxes must have been passed into law through enactment of relevant statute (Act, By-law, decree, among others).

However, experts have argued that frequent recourse to taxation will not only pile more pressure on companies, but will also push the burden to the final consumers who will bear the brunt of the government’s imprudent tax system.

A Professor of Economics and Public Policy at the University of Uyo, Prof Akpan Ekpo, during an exclusive chat with our correspondent, said it had become inevitable for companies to shift the burden of taxes to consumers in order to maintain their profit margins.

He also blamed the government for frequently levying taxes on the organised private sector at a period of economic difficulty occasioned by inflation as well as other factors.

He said, “It’s not the best time to impose taxes because the economy has been dealing with stagflation, rising unemployment, inflation, and hardship. You can’t start imposing taxes now. Once you do that, the companies will push the tax to the consumers.”

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