The preponderance of the informal sector in the largest economy in the African sub-region may make government’s projected N66.1 billion revenue from stamp duty a long shot, BusinessDay findings indicate.
Also, the rising status of the informal sector has the potential to affect proper planning, as it tends to question the integrity of the data used in arriving at some of the policies by either the Central Bank of Nigeria, (CBN), National Bureau of Statistics (NBS) and the finance ministry, analysts say.
The implication, according to them is the increased pressure on the local currency,the naira and the continued rise in inflation rate.
Godwin Emefiele, CBN governor had at the sidelines at the recent Monetary Policy Committee (MPC) meeting in Abuja, said that the Federal Government was targeting additional N66.1 billion in revenue in 2016 from an imposed stamp duty of N50 on bank customers for transactions into or out of their accounts.
While criticising the government for the unilateral imposition of the duty without consultation and explicit explanation of the usage of the funds, some analysts said the thriving but undocumented informal sector might undermine the objective of the policy.
Already, increasing economic informality has complicated the task of policy-making, as the illiquid parallel market lends itself more readily to overshooting, and is less sensitive to policy. The scale of the problem has intensified while the tools available to deal with it are increasingly constrained.
“The unilateral imposition without adequate explanation by the finance minister on the planned use of the fund is in a bad taste. Besides, I don’t see government achieving the aim with the recent dominance of the informal sector,” says Friday Ameh,an energy analyst.
Business Day gathered that manufacturers are already demanding for the removal of banks in the disbursement process of the foreign exchange, citing, cumbersome and frustrating processes in going through the banks for forex on behalf of their customers.
“Banks comprise a key part of Nigeria’s formal sector economy, contributing even more significantly to government revenue, following the 2016 introduction of a stamp duty on banking-sector transactions.
“However, the diversion of economic activity from the formal banking sector, risks further eroding this revenue contribution,” says Razia Khan, analyst with Standard Chartered Bank, London, Khan, in the current Global Research for March, “Nigeria- The Rising Cost of Economic Informality” said, “At a time when the authorities are hoping to mobilise significantly higher rates of revenue from the private sector in order to meet stretching budget revenue targets, increased economic informality may put these ambitions at risk.
“At the time of writing, the Manufacturers Association of Nigeria (MAN) has called on the CBN to sell FX directly to manufacturers, rather than through banks–a call that is unlikely to be heeded, not least because of the level of support the banking sector will require for continued access to trade facilities with correspondent banks. A number of manufacturers have cited increased difficulty in obtaining FX for imported inputs.”
Bismarck Rewane, chief executive, Financial Derivatives Company, (FDC) observes that the implication is that “Commodity price volatility will be higher than normal and prices will swing with parallel market rate.”
Rewane, in the current Lagos Business School Breakfast meeting, emphasised the need for the Presidency to be able to differentiate between what is politically important and what is urgent, adding that “the economic agenda at this point looks disjointed.
“The implication is that foreign portfolio investors would remain on the side-lines as exchange controls and volatility paint hazy outlook.”
He observed that the overvalued naira is aligned with the FG’s plans to undertake countercyclical fiscal policy, through borrowing and a mooted two-tier exchange rate system.