ICAN lauds subsidy removal, recommends 11-point agenda to cushion its effects
By: Bisi Akingbade
The Institute Chartered Accountants of Nigeria, ICAN, has lauded the recent removal of fuel subsidy as bold steps taken by the new government to address market distortions and block revenue leakages.
The institute however called for action plans to reduce the burden of such economic policy decisions and limit the burden on the populace especially small businesses and vulnerable households.
In a paper titled "Fuel Subsidy: Critical Considerations for success in Implementation" by the Registrar/Chief Executive of ICAN, Prof. Ahmed M. Kumshe FCA, the institute recommended the following Eleven-Point action plan to the federal government to cushion the effect of the fuel subsidy:
"1. Stakeholder engagement–Effective-consultation and communication with all relevant stakeholders is critical for the introduction and implementation of any major policy, as it will facilitate buy-in, broad support and ensures ease of implementation. While it would have been ideal for this to happen prior to the removal of the fuel subsidy, we acknowledge and commend the federal government for taking the necessary steps to engage and manage various stakeholders. Stakeholder engagement will build trust and ensure that the process is inclusive.
"2. Credible palliatives –The government needs to introduce credible palliatives to cushion the impact on the most vulnerable population beyond the civil service. In this regard, the government should design and implement palliatives for low-income earners especially in cities and towns where the cost of living will rise much higher. It should introduce policies that will bring down the cost of transportation and food. Palliatives should be implemented at both the national and sub-national levels. Care should be taken to measure the cost of palliatives to be introduced to avoid re-introducing another form of subsidy. This is where chartered accountants are needed. We do not support the borrowing of $800m for palliatives when the savings from the subsidy removal can be used for this purpose, saving the country from further
debt and rising debt service costs. For SMEs, palliative may be to put on hold, the recently introduced tax increases, while granting tax rebates and investing in infrastructure.
"3. Better accountability and transparency– Notwithstanding the full deregulation, there is still the need
for full transparency and accountability of all activities within the oil and gas sector. A situation where the public does not know the exact daily consumption of fuel is inexcusable. All individuals and organisations that may have been involved in subsidy corruption should be investigated and punished while established proceeds of such crimes should be recovered. There should also be transparency on how fuel prices are determined in the future. The relevant regulators should therefore set in motion a framework to ensure full transparency leveraging on technology. This will also provide useful information
for any necessary interventions by the government in the future as envisaged in the Petroleum Industry Act. Chartered Accountants are well placed to help government in all aspects of accountability and transparency in the oil and gas sector.
"4. Leadership by example – Political office holders should lead by example in making the necessary sacrifice to restore the country back to the path of fiscal buoyancy. This is necessary to show that leaders are making sacrifices too and not just the ordinary citizens being overburdened. Matters such as security votes and general cost of governance should be addressed. Government should demonstrate fiscal prudence and financial discipline rather than extravagance amid widespread poverty.
"5. Utilisation of savings–The savings from the subsidy removal and subsequent accretion to the federation account should be applied in a manner that will optimise the benefits to the people in view of their sacrifices. According to the World Bank and IMF, Nigeria spends an average of USD$23 per annum on every Nigerian on education, compared to UDS$32 in Mali, USD$88 in Ghana and USD$350 in South
Africa. Nigeria spends even less on health (USD$15 per capita per annum). The savings should be directed at human capital and critical infrastructure. In addition, the States and Local Governments should prioritise spending on the key factors responsible for multidimensional poverty including
provisions of primary healthcare, clean water and basic education that are accessible and affordable to the people especially in rural areas. The benefits should not be limited to demonstrable growth in GDP but extended to inclusive development, and delivery against the Sustainable Development Goals,
SDGs.
"6. Effective regulation – While market forces are desirable for price recovery, government needs to ensure effective regulation and monitoring to prevent manipulations and market imperfections that may lead to exploitative pricing or price collusion. Regulation is also required to ensure that the desired
quality of products is achieved whether imported or locally produced, and the maintenance of sufficient stock to guarantee uninterrupted supply.
"7. Market efficiency– The gains which are expected to accrue because of market efficiency should cascade to the people rather than for the enrichment of a few. The relevant government agencies involved in the downstream petroleum industry value-chain should aim to improve their performances not to hinder the effective operation of the sector and minimise financial burdens in the form of levies which can keep prices high. We note that the pump prices of diesel and household kerosene for instance, are relatively higher in Nigeria compared to our neighbouring countries despite the deregulated pricing and notwithstanding that many of the taxes imposed on fuel products in these
countries are not applicable in Nigeria. This situation can therefore be attributed to market imperfections and inefficiencies within the value chain.
"8. Import regime: A large number of private refineries that were recently commissioned or licensed have not yet commenced operations, whilst government-owned refineries are undergoing rehabilitation. As we continue to import PMS before the local refining commences, the regulatory
authorities should demonstrate transparency in the issuance of import licenses. Adequate number of
licenses should be granted to importers with demonstrated capacity and capital. No one individual or few individuals should be granted import licenses to avoid the risk of monopoly or oligopoly. This will ensure fair pricing of PMS to consumers.
"9. Complementary policies- To attract investment into the sector at the required scale, government needs to introduce other policies to complement the fuel subsidy removal to make the sector competitive and attractive given its international nature. Policies seeking to impose higher taxes on gas operations, duties on renewable energy items amongst others should be reviewed. The border closure in respect of items where local production falls short of the nations demand should also be reconsidered. The requirements to pay certain taxes and levies in foreign currencies should be discontinued while policy formulation should be evidence-based, and data driven.
"10. Envision tomorrow– As the most populated country in Africa and with the highest GDP, Nigeria needs to provide leadership in every aspect. With the enactment of the Petroleum Industry Act (PIA) and the full deregulation of the downstream sector, government needs to develop a blueprint for Nigeria and our place within the international community and more specifically on the continent leveraging on the African Continental Free Trade Area(AfCFTA) Agreement. There should be a concrete plan for energy transition, refining for Africa, the future of the NNPC Limited and the nations refineries, unlocking gas investments to bridge the gap created in Europe due to the invasion of Ukraine by Russia.
"11. Fiscal responsibility - With the greatest burden and pressure on the country's finances taken care of,
government must recommit to following due process and respecting the rule of law regarding budgeting, borrowing and expenditure efficiency. Legally prescribed limits as set out in the Fiscal Responsibility Act should be respected at all times. Also, the budgeting process needs to be improved as government's
revenue increases thereby creating the fiscal space to finance development. The consequential savings from fuel subsidy removal, lower debt service cost, elimination of forex subsidy, etc., should be channeled into programmes that will benefit the people and in line with fiscal responsibility legal framework. Again,
chartered accountants are position to lead in they accountability and transparency required here."
In its conclusion, ICAN recognizes that this is a momentous time in the nation's history and that certain difficult but necessary decisions must be made
which may result in temporary pains to pave way for the gains of tomorrow and a desirable future for the
next generation.
ICAN described it as a duty for which all must not fail. It remarked that the review of President Tinubu's Policy Advisory Council Report reveals that more reforms are in store in the power sector and exchange rate management, among others. All these are laudable, ICAN said
However, the institute through Prof. Kumshe lamented that given the trust deficit in the government that has followed years of failed promises, corruption and fiscal laxity, the efficacy of the much-needed reforms may be constrained.
"The Institute of Chartered Accountants of Nigeria stands ready and offer its support to the government in
the effort to move our country forward", it stated finally.