One of the key changes in the new Finance Act 2020 is the reduction in the import levy on cars from 30% to 5%. This is in addition to a reduction of import duty on Tractors from 35% to 5%, and on mass transit vehicles for transport of more than 10 persons and trucks from 35% to 10%.
This would mean a significant drop in the price of imported brand new cars. While this is good news for motorists and car dealers, the policy will weigh negatively on the domestic automobile manufacturing industry and on government revenue from duties and levies.
One of the major objectives of an import levy, besides raising revenues for the government, is to increase the price of imported goods to a level at least as high as the domestic price. This is supposed to make the domestic price more competitive and incentivize domestic production.
So while the government is set to earn less revenue from the reduced levy, the reduction in levy is in clear contradiction to the recommendation of the Bureau of Public Enterprises (BPE) led committee in August 2020, urging a sustained restriction by tariff on automobiles imports that are being assembled in Nigeria in line with the National Automotive Industry Development Plan.
It will undermine the progress made since the launch of the National Auto Policy six years ago, which had encouraged several firms to step up investments into local auto assembly plants. It will be a major disincentive to future investment while also putting current investment in the industry at risk of loan defaults and bankruptcy.
The African Continental Free Trade Agreement (AfCFTA) will lower the import cost of automobiles manufactured in Africa. South Africa exported 271,819 units of new vehicles in 2020 while Volkswagen's car assembly plant in Ghana has a capacity of 5000 units. The policy will trigger an influx of cheaper cars from these countries, which will further impede the fortunes of the domestic auto plants.
Related to AfCFTA