In June 2018, Nigeria introduced a new tax regime on tobacco products. In addition to the present 20% ad valorem excise duty charged on locally produced goods, tobacco products will now attract a specific duty of ₦20 per pack, which will rise to ₦40 and ₦58 in 2019 and 2020 respectively. Given government’s decision to adopt tobacco taxation as part of broader tobacco control measures, we examine the potential impacts of this new policy as well as other recommended changes in the tobacco tax levels.
Policy Brief & Alerts
Provisional Monetary statistics by the CBN show an increase in currency in circulation a portion of overall money supply. Specifically, currency in circulation rose (Month-on-Month) by 14.2 percent to N2.2 million in December 2016 the highest Month-on-Month increase recorded for the year 2016. The rise in currency- outside-bank may be attributed to the growing demand for cash balances for spending activities during the festive period. This development would largely compound the liquidity problem associated with TSA implementation and ongoing CBN monetary tightening as deposit money banks might be cash-strapped. Going forward, efforts should be geared towards intensifying initiatives that promote a cashless economy that encourages cashless transactions.
The Executive council recently approved a three-year external borrowing plan (2016-2018) which specifies external borrowing of approximately $30 billion (to be sourced mostly from MDBs) for infrastructure development. Although, the plan is yet to be approved by the Senate, the planned concessional loans for infrastructural development would imply inflows of foreign exchange which could help moderate the exchange rate volatilities in the near term, and offer potential improvement in business productivity and job creation.
Recently released data by the Debt Management Office reveals a further increase in Nigerias debt stock as at the end of 2017Q3. Total debt stock stood at N20.37 trillion as at September 20172, increasing by 3.75 percent Quarter-over- Quarter and 20.67 percent Year-on-Year. External debts rose 2 percent to N4.69 trillion, while domestic debts (FGN and States) grew by 4.3 percent to N15.68 trillion both accounting for approximately 23 percent and 77 percent of total debt stock respectively. Obviously, Nigerias increasing debt accumulation at a rate faster than GDP growth rate, clearly exacerbates difficulties in meeting debt repayment and sustainability of debt servicing measures. The recent borrowing surge should be utilized to provide socially viable and profitable infrastructure so as to minimize the future debt burden.
Global economic growth remained fairly stable in 2016Q3 with baseline projections for global growth at 3.1 percent and 2.4 percent by International Monetary Fund (IMF) and the World Bank respectively. Growth in developed countries was moderate but unevenly distributed: while the U.S and the UK showed improvements, growth in other economies remained tepid. Among emerging countries, India witnessed higher growth while growth in China remained constant but the Chinese Yuan continued to appreciate. Given that India is Nigerias major crude oil importer, improving economic conditions in India may translate into rising demand for Nigerias crude oil. However, the continuous appreciation of the Yuan poses significant inflationary threat in Nigeria given the high level of imports from China. Subdued global demand, weak trade, uncertainties in commodity prices and consequences of the Brexit were the key constraining factors to growth over the period. In addition, growth in Sub-Saharan African countries remained generally slow on the account of low commodity price, political turmoil, and inconsistent government policies.