In a move that has sparked considerable controversy; the Federal Government of Nigeria is facing growing resistance against its proposed plan to impose excise taxes on parallel market transactions. A host of financial experts and industry stakeholders have come forward to criticize the idea, expressing concerns that it could lead to further instability in the nation’s financial markets.
The notion of levying excise taxes on parallel market transactions was proposed to the government by Taiwo Oyedele, a presidential committee leader and former tax leader of PricewaterhouseCoopers (PwC) Nigeria. However, this proposal has not been well-received among various segments of the financial sector, including economists, analysts, and even the general public.
Prominent economisst and financial analysts have voiced their apprehension about the potential consequences of such a tax, stating, Taxes on parallel market transactions could deter foreign investment and further devalue the Naira. It is a move that is counterproductive to efforts to stabilize the economy.
Social media has also played a significant role in the backlash against this proposed tax. On Twitter, user @MikaelCBernard expressed his concerns, tweeting, ” If they do this, Argentina’s currency problems will be a child’s play compared to Nigeria. The Argentines had a similar tax imposed, and it led to a total collapse of their currency (from 300/$ last year to 1100/$ this year). They now have 4 different exchange rates, no liquidity, hyper-inflation and other problems. That tax will just be added to the price and will boost the margins. Naira will crash woefully, to the point that full dollarization becomes the solution. If this policy is implemented, it would be the worst ever policy in the history of Nigeria. I’m looking forward to it. If I send $10 to someone, it would be like 30k Naira. December in Nigeria go sweet. Just carry $1k and the entire village will sing your praise”. This sentiment echoes the fears of many Nigerians who worry about the potential negative impact on the country’s currency.
Experts argue that the imposition of excise taxes on parallel market transactions would likely lead to:
Increased Black Market Activity: The tax could drive more transactions underground, making it difficult for authorities to track and regulate them.
Foreign Exchange Rate Instability: By increasing the cost of doing business in the parallel market, the exchange rate of the Naira against the US dollar and other foreign currencies could become even more volatile.
Deterrence of Investment: The imposition of such taxes might discourage foreign investors from entering the Nigerian market, which would hinder economic growth and development.
Market Distortion: Parallel markets often serve as safety valves for the broader economy, offering access to foreign currency in times of scarcity. Imposing taxes could distort these markets and limit their effectiveness.
In response to this growing backlash, experts and industry stakeholders have called on the Federal Government to reconsider its decision to impose excise taxes on parallel market transactions. They emphasize the importance of seeking alternative measures to address the nation’s economic challenges without undermining financial stability.