New reforms in Nigeria could further weaken people’s purchasing power

(Ecofin Agency) – The Nigerian government plans to implement new reforms this year to broaden its tax base and lower the budget gap. Under this strategy, the 2022 Finance Act provides that schools and education centers should now pay a corporate tax. Until now, they were exempt from this tax. To maintain the same levels of margin in absolute terms, these educational centers could raise tuitions to compensate for the loss of profits caused by the new tax.

Another sector also affected by the reform is the beverage industry. N10 will now be collected per liter of soft drinks and other sweets. Tax experts say this should result in a 5% increase in the prices of drinks, according to Proshareng. Moreover, the government has provided that a “science and engineering tax equivalent to 0.25% of their pre-tax profit will be payable by companies in the banking, mobile telecommunications, ICT, aviation, shipping, oil and gas with a turnover of N100 million and above.”

In 2022, the budget deficit in Nigeria is expected at N6.4 trillion (about $15.6 billion). Analysts at investment firm FBN Research said the government projects to collect a record N10.7 trillion in revenues this year. Broadening the tax base is often presented as the solution to increasing domestic resources and reducing debt. But the reforms implemented under this strategy often weigh on the purchasing power of households. This is particularly observed in Sub-Saharan African countries.