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FG to Allow Huge Tax Debtors Pay in Instalments

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tax relief
  • FG to Allow Huge Tax Debtors Pay in Instalments

The Federal Government is to offer tax defaulters with huge (tax) liabilities a period of three years to spread their tax payment under the Voluntary Assets and Income Declaration Scheme.

This is one of the strategies of the government to ease the burden of such debtors by taking advantage of the new tax scheme to offset their debts.

The VAIDs programme offers a grace period from July 1, 2017 to March 31, 2018, for tax defaulters to voluntarily pay back to the government what they owe.

In exchange for full and honest declaration, the government promises to waive penalties that should have been levied and the interest that should have been paid on overdue tax.

Also, those who declare their tax obligation honestly would not be subjected to any investigation or tax audit after the nine month grace period.

Nigeria has one of the lowest tax compliance rates in the world with a tax-to-Gross Domestic Product ratio currently standing at six per cent.

Top government officials involved in the implementation of VAIDS confided in our correspondent that those who failed to take advantage of the scheme and later found to have under-declared their income or assets would be treated as wilful tax evaders and made to face the full force of the law.

The official said apart from prosecution, the government had agreed to allow taxpayers with huge tax debts to enter into arrangements to pay outstanding tax liabilities in instalments.

This, according to the source, who spoke on condition of anonymity as he was not officially permitted to talk on the matter, is as a result of the fact that some of the tax defaulters may not have cash to immediately offset their huge tax liabilities.

However, he said while these categories of tax defaulters might be allowed to settle their tax obligations in instalments, they would be required to pay interest on the outstanding balance.

The ministry of finance had in May this year approved a new interest rate on unpaid taxes, which it pegged at five per cent over the Central Bank of Nigeria’s Minimum Rediscount Rate for 2017.

The CBN’s Monetary Policy Rate currently stands at 14 per cent, thus implying that with the five per cent spread, tax defaulters will now have to pay an interest rate of 19 per cent on tax debts.

The official said, “Even though ignorance of the law is not an excuse, the government has decided to take the pragmatic approach of offering an amnesty window to allow Nigerians, who may have evaded tax, whether ignorantly or deliberately, the opportunity to do their civic duty and pay the correct taxes whilst providing the much needed revenue for Nigeria’s infrastructure.

“The Federal Government appreciates that many defaulters have assets but may not have cash. Therefore, taxpayers will be allowed to enter into arrangements to pay outstanding tax liabilities in instalments.

“Taxpayers may, at the discretion of the relevant authority, be granted up to three years to pay their liability, but will be obliged to pay interest on the outstanding balance.”

The official said through the scheme, taxpayers would be able to transfer assets that they had previously held by nominees into their own name.

“It should be remembered that many Nigerians have lost assets in the course of trying to conceal them from the authorities.

“Such losses typically occur in the event of death or an urgent need to liquidate assets when required documentation and proof of ownership cannot be provided,” he added.

The Minister of Finance, Mrs. Kemi Adeosun, on Tuesday challenged stockbrokers to assist the government to identify those who have huge investments in securities but are not paying the correct taxes.

She said, “We recently launched the VAIDS scheme and those of you who are privileged to see the forms would notice there is a huge section on investment such as mutual funds, shares and other investments, which we are expecting patriotic Nigerians to voluntarily declare and pay the taxes and arrange to pay any taxes they have not paid on the acquisition of those assets.

“We have only 214 Nigerians paying taxes of N20m and above and you as stockbrokers have a role because you are the transaction managers, and brokers of many of these transactions, and many of these complex tax shelters you help to set up.”

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Economy

Goldman Sachs Urges Bold Rate Hike as Naira Weakens and Inflation Soars

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Central Bank of Nigeria (CBN)

As Nigeria grapples with soaring inflation and a faltering naira, Goldman Sachs is calling for a substantial increase in interest rates to stabilize the economy and restore investor confidence.

The global investment bank’s recommendation comes ahead of the Central Bank of Nigeria’s (CBN) key monetary policy decision, set to be announced on Tuesday.

Goldman Sachs economists, including Andrew Matheny, argue that incremental rate adjustments will not be sufficient to address the country’s deepening economic challenges.

“Another 50 or 100 basis points is certainly not going to move the needle in the eyes of an investor,” Matheny stated. “Nigeria needs a bold, decisive move to curb inflation and regain investor trust.”

The CBN, under the leadership of Governor Olayemi Cardoso, is anticipated to raise interest rates by 75 basis points to 27% in its upcoming meeting.

This would mark a continuation of the aggressive tightening campaign that began in May 2022, which has seen rates increase by 14.75 percentage points.

Despite this, inflation has remained stubbornly high, highlighting the need for more substantial measures.

The current economic landscape is marked by severe challenges. The naira’s depreciation has led to higher import costs, fueling inflation and eroding consumer purchasing power.

The CBN has attempted to ease the currency’s scarcity by selling dollars to local foreign exchange bureaus, but these efforts have yet to stabilize the naira significantly.

“Developments since the last meeting have definitely been hawkish,” noted Matheny. “The naira has weakened further, exacerbating inflationary pressures. The CBN’s policy needs to reflect this reality more aggressively.”

In response to the persistent inflation and naira weakness, analysts are urging the central bank to implement a more coherent strategy to manage the currency and inflation.

James Marshall of Promeritum Investment Management LLP suggested that the CBN should actively participate in the foreign exchange market to mitigate the naira’s volatility and restore market confidence.

“The central bank needs to be a more consistent and active participant in the forex market,” Marshall said. “A clear strategy to address the naira’s weakness is crucial for stabilizing the economy.”

The CBN’s decision will come as the country faces a critical period. With inflation expected to slow due to favorable comparisons with the previous year and new measures to reduce food costs, including a temporary import duty waiver on wheat and corn, there is hope that the economic situation may improve.

However, analysts anticipate that the CBN will need to implement one final rate hike to solidify inflation’s slowdown and restore positive real rates.

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Economy

Currency Drop Spurs Discount Dilemma in Cairo’s Markets

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Egyptian pound

Under Cairo’s scorching sun, the bustling streets reveal an unexpected twist in dramatic price drops on big-ticket items like cars and appliances.

Following March’s significant currency devaluation, prices for these goods have plunged, leaving consumers hesitant to make purchases amid hopes for even better deals.

Mohamed Yassin, a furniture store vendor, said “People just inquire about prices. They’re afraid to buy in case prices drop further.” This cautious consumer behavior is posing challenges for Egypt’s consumer-driven economy.

In March, Egyptian authorities devalued the pound by nearly 40% to stabilize an economy teetering on the edge. While such moves often lead to inflation spikes, Egypt’s case has been unusual.

Unlike other nations like Nigeria or Argentina, where costs soared post-devaluation, Egypt is witnessing falling prices for high-value items.

Previously inflated prices were driven by a black market in foreign currency, where importers secured dollars at exorbitant rates, passing costs onto consumers.

Now, with the pound stabilizing and foreign currency more accessible, retailers are struggling to sell inventory at pre-devaluation prices.

Despite price reductions, the overall consumer market remains sluggish. The automotive sector has seen a near 75% drop in sales compared to pre-crisis levels.

Major brands like Hyundai and Volkswagen have slashed prices by about a quarter, yet buyers remain cautious.

The economic strain is not limited to luxury items. Everyday expenses continue to rise, albeit more slowly, with anticipated hikes in electricity and fuel prices adding to the pressure.

Experts highlight a period of adjustment as both consumers and traders navigate the volatile exchange-rate environment. Mohamed Abu Basha, head of research at EFG Hermes, explains, “The market is taking time to absorb recent fluctuations.”

Meanwhile, businesses face declining sales, impacting their ability to manage operating costs. Yassin’s store has offered discounts of up to 50% yet remains quiet. “We’ve tried everything, but everyone is waiting,” he laments.

The devaluation has spurred a shift in economic dynamics. Inflation has eased, but the pace varies across sectors. Clothing and transportation costs are up, while food prices fluctuate.

With the phasing out of fuel subsidies and potential electricity price increases, Egyptians are bracing for further financial strain. The recent 300% rise in subsidized bread prices adds another layer of concern.

The situation underscores the balancing act between maintaining consumer confidence and attracting foreign investment.

Economists suggest potential stimulus measures, such as lowering interest rates or increasing public spending, to boost demand.

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Economy

MPC Meeting on July 22-23 to Tackle Inflation as Rates Set to Rise Again

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Interbank rate

The Monetary Policy Committee (MPC) is set to convene on July 22-23, 2024, amid soaring inflation and economic challenges in Nigeria.

Led by Olayemi Cardoso, the committee has already increased interest rates three times this year, raising them by 750 basis points to 26.25 percent.

Nigeria’s annual inflation rate climbed to 34.19 percent in June, driven by rising food prices. Despite these pressures, the Central Bank of Nigeria (CBN) projects that inflation will moderate to around 21.40 percent by year-end.

Market analysts expect a further rate hike as the committee seeks to rein in inflation. Nabila Mohammed from Chapel Hill Denham anticipates a 50–75 basis point increase.

Similarly, Coronation Research forecasts a potential rise of 50 to 100 basis points, given the recent uptick in inflation.

The food inflation rate reached 40.87 percent in June, exacerbated by security issues in key agricultural regions.

Essential commodities such as millet, garri, and yams have seen significant price hikes, impacting household budgets and savings.

As the MPC meets, the National Bureau of Statistics is set to release data on selected food prices for June, providing further insights into the inflationary trends affecting Nigerians.

The upcoming MPC meeting will be crucial in determining the trajectory of Nigeria’s monetary policy as the government grapples with economic instability.

The focus remains on balancing inflation control with economic growth to ensure stability in Africa’s largest economy.

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