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Why Customs Duty On Vessel Import Has Economic Benefits

Why Customs Duty On Vessel Import Has Economic Benefits

Comptroller General of Customs Col. Hameed Ali retd

By Kenneth Jukpor

Despite the popular complaints by shipping experts that the Federal Government’s fiscal policy to collect duties on vessel imports kills the economy, Nigeria Customs Service (NCS) has a novel interpretation. DC Dera Nnadi is the Deputy Comptroller, Enforcement at Tin Can Island Customs Command. He is an astute Trade Facilitator and World Customs Organization (WCO) award winner for the Promotion of Customs-Business Relationship. At a recent workshop organized by the Manufacturers Association of Nigeria (MAN) in Lagos, MMS Plus squeezed out this interview. Enjoy it:

In recent times there have been complaints by ship owners that temporary importation of ships goes without Customs duty, while indigenous operators are made to pay duty on ships coming in on permanent basis?

It is important to note that Customs didn’t develop this policy. We only implement it as a fiscal policy of the government but then I think there is a little misconception here about what waiver fiat is all about. It is not totally true that when you are bringing a ship under TI (Temporary Importation) it is almost free as has been expressed here. If they calculate the duty you would have paid on that item assuming it is being brought in for home use and not for temporary importation, you are supposed to deposit that same amount in a bank as bond and then present the bond certificate to the Customs and on the basis of that, you are granted Temporary Importation waiver and this is for a specified renewable period.

Why do the ships coming in on temporary basis get given waivers, whereas those on permanent basis pay Customs duty?

For the ships which pay duty, there has been outright purchase of the vessel. Nigerian money has been transferred abroad for the purchase of that vessel. Assuming the vessel cost N2billion, the operator would have taken Nigeria’s N2billion to the foreign vessel manufacturer, so bringing the vessel back you are asked to pay duty which is 5% of the value of the vessel.

That money paid to the ship-owner has gone to develop the ship-owner’s country and his business. It has provided employment for the ship-owner’s community and his country. The money you have paid will be used to develop the shipping business and the shipping community of the man who sold that ship to you the Nigerian. It is actually a minus for Nigeria’s shipping community because the operator has taken money out. Money which would have developed our own shipping environment.

However, for the ships that come in on temporary basis, you’re not paying the N2billion as you’re only renting that ship. Perhaps the value of the ship is N2billion. You may rent it for N200million or more for a period. So, you have saved N1.8billion that would be injected into the Nigerian economy, so the money is still being turned over within Nigeria’s economy because you rented.

In addition to the fact that you rented, when people say waiver was granted, it isn’t as if it doesn’t cost you anything. What Customs does is to request that the value of that vessel and the duty it would have paid is calculated and we assess what the duty would have been. After the assessment, you would have to deposit the equivalent of the duty in a Nigerian bank and the bank gives you a certificate which you present to the Customs as bond. Now look at that, you rented the ship for N200million rather than the N2billion you would have paid outright. It is assumed that the difference of N1.8billion would be re-invested as liquid cash to add value to Nigeria’s economy essentially the shipping sector perhaps.

From the perspective of local content development on ship acquisition and also noting that ship-owners aren’t responsible for Nigeria’s inability to build ships. Would you say it is fair to collect 5% duty on ships coming to fly the Nigerian flag, do business in Nigeria and employ Nigerian cadets?

I would say it is fair. It is fair in the sense that if you were to use N2billion to buy a ship from another country. If you can send our hard-earned N2billion to another country and you were given an opportunity to rent at N200million and encouraged to invest liquid cash of N1.8billion into the Nigerian economy, why not invest the N1.8billion into the development of a ship-building facility in Nigeria? Rather than transfer Nigeria’s money outside to buy an already made item, why not rent it temporarily and use the other money you saved through this government incentive to invest in this critical infrastructure aspect  of our economy which is ship building and ship repair yards. That’s the idea.

Remember that ship-owners aren’t guaranteed of sufficient availability of cargoes. I have heard arguments that certain vessels are for crude oil and  petroleum products but there is no government policy that isn’t worth the patience and understanding for its interpretation. My suggestion is that people should stop saying we aren’t encouraging indigenous operators because it is a government policy that we must implement with expected long time benefits.

From the analysis that I have given, you would understand that government through this policy encourages the banking sector too because the money is deposited in the bank for the period the temporary importation would last. The money also helps the banking and monetary system to grow. The money is used to develop other aspects of the nation’s economy during the time, including shipping.

I would suggest that ship-owners urge the government to invest the duty Customs has collected into the development of the nation’s shipping sector. You should also note that the money Customs collect doesn’t go to the Customs. It goes to the Treasury Single Account (TSA) and Customs get a fraction from the money generated. Customs doesn’t just collect the monies on behalf of the government but on behalf of every Nigerian and every sector of the nation’s economy. This is because that money can be diverted to address security, for the Nigerian Navy or Nigerian Police. It could also be diverted to the development of the educational sector via tertiary institutions or it could be utilized to improve the road infrastructure or health sector. There are so many things Customs duty is used for; so people should stop seeing it like Customs is trying to stifle this aspect of the economy. The Service operates on budget like many other government agencies too.

There are also other issues that affect ship-owners such as the unavailability of spare parts for which they also have to pay duties unlike their counterparts in other countries. Other countries that have made giant strides in developing their shipping sector especially in the aspect of ship acquisition have given waivers to local operators. There’s also the problem of unavailability of single interest loans for shipping. Would you say the Nigerian government has done a lot to develop the sector?

I would agree with you that the government needs to do much more. However, everything can’t be left in the hands of the government. If you talk about single digit interest not being available, these are monetary policies and you have the banker’s committee. The ship-owners are vocal. They can form a consortium to advocate for this by engaging the bankers committee.

The business of ship ownership is capital intensive. Ship-owners can come together to acquire such ocean-going vessels. Even banks sometimes come together to merge during the bank recapitalization. The challenge in the Nigerian shipping sector may be that all the ship-owners want to stand alone. However, three to five people can come together and get banks to finance the acquisition of the vessel and also get the government to provide the incentives to further help the investment thrive.

If you also say ship parts aren’t available, who says we can’t start from production of ship parts? Are we going to wait until the government removes every waiver before we start producing ship parts? Do you mean that if the government says every ship shouldn’t pay duty, automatically Nigerians would import tens of ships into the country since duty isn’t paid? Would that also translate to Nigeria being able to manufacture ships or its spare parts? I don’t think so.

Are you aware that most commercial airlines that fly are actually on temporary basis? What you have prevalent in that sector is leasing. People lease aircrafts to fly for a particular period, pay the owners and return the aircraft. There are certain things in the haulage and transport sector that are so capital intensive that you don’t really need to buy.

Let’s look at instance of someone who wants to drill for crude oil in a particular location. He buys the rig permanently and after exploration and drilling for a period of two or three years what would he do with the rig? A rig is so expensive and it would have been better to hire the rig for the period and return it afterwards. By the way, while it was drilling, you would have deposited the equivalent as bond in a bank. The bank would use that money to trade; it would generate more money to keep bankers employed and keep the economy healthy. Look at this issue from a holistic view and you would notice that it would benefit various sectors of the nation’s economy.

I am not the mouthpiece of the government.  But certain discussions point to the obvious. I said this at the NIMASA Cabotage meeting and the Nigerian Chamber of Shipping (NCS) recent meeting. As a Customs officer, my job is to attend these events when invited and approval is given by the management for me to represent the Service. I would tell people what the government wants them to do, help to interpret these policies and explain how it would benefit the economy. Customs is an agency to implement the fiscal policies of the government but as we implement and interface with the stakeholders, we take back the feedback and submit reports to the government.

Today’s workshop was on the ECOWAS policy on the ratification and implementation of ECOWAS Investment Code policy. What is the implication of this on the member countries?

The programme was actually a sensitization workshop for stakeholders on the ECOWAS policy on the ratification and implementation of ECOWAS Investment Code policy. It was hosted by the Manufacturers Association of Nigeria (MAN) and they invited government agencies involved in trade such as Immigration, Customs, Ministry of Trade, Investment and Industries, Chambers of Commerce, among others.

The policy encourages investment in countries within the sub-region. The essence is to ensure that investors within the sub-region enjoys certain incentives and addressing issues such as tariffs, tax, acquisition of land, protection of intellectual property rights within the sub-region. Other issues include the free movement of goods and persons and infrastructural development across the sub-region.

Some of these issues are similar to the African Continental Free Trade Agreement (AfCTA) which Nigeria is yet to sign. Recall that MAN was against the signing of that treaty initially. Did the participants also deliberate on it?

This was one of the issues that sparked a thrilling debate among the people that came as you can see. There were people for the treaty as well as those against. However, the signing period would soon elapse and the agreement would become mandatory on all nations if twenty-two countries sign. The issue is that whether Nigeria signs or not, once it is ratified, the agreement is binding on us. For Nigeria to be part of this in future if it doesn’t sign before the period elapse, we would have to visit all the countries that signed one after the other to convince them before we come in.

I would have to wait for the Service to take a position on this. I can’t divulge my opinion on this as an individual. Basically, most of the things centered on how West African nations can provide incentives to support investments within the sub-region.

We have had several treaties and agreements similar to this that didn’t work. The ECOWAS Common External Tariff (CET) and several sub-regional agreements have been introduced with little or no impact. How do we balance this, bearing in mind that as the biggest economy Nigeria could be easily become the biggest losers if its manufacturing sector can’t keep up with the competition?

 

I don’t want to agree with you on this because we may not have achieved 100% but there is progress. However, under the current globalization, no country would remain an Island.  You must trade. You must be competitive. All great countries in the world became rich through trading. The likes of UAC, Kingsway, Coca-cola and other global brands came out to trade in other countries and continents. Inter and intra-regional trade is as old as humanity. Recall the age of trade by batter, people had to exchange their goods for what they needed.

If you don’t trade with others there would be no competitiveness and no room for growth or improvement in the products or services. You keep thinking that your products are the best, but if you have opportunity to trade with others and there is competition, you would keep improving on what you are producing because there is a challenge to be better. Nigeria isn’t landlocked, so this is an added advantage reach out.

Today, someone raised the complaints that foreign countries are fishing in Gambia. That they would fish and send the products to the Nigerian market. As a Nigerian, isn’t it better to go to Gambia under this same exclusiveness and protection to do the fishing? My opinion though. That’s the essence of the agreement.

Also note that there are companies in Nigeria such as Dangote Group, Nestle, Cadbury, Unilever, among others, who produce in the country and export to other countries within the sub-region. Are we going to consume the products that should have been exported to these nations? That is why it is important we engage well in these matters.

If the problem is the poor state of infrastructure in the country as was mentioned during the meeting, these stakeholders should request the government to fix these critical infrastructures such as roads, power supply, among others as a prerequisite to signing the agreement and then revisit the issue because no country survives without trading without another.

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