The Institute of Chartered Accountants of Nigeria (ICAN) has commended the bold step taken by the administration of President Bola Ahmed Tinubu following the recent removal of subsidy on PMS and the mixed reactions generated across the different sectors of the country and the institute has also recommended eleven-point action plan to help stabilize the economy.
ICAN, through a release signed by the Registrar and Chief Executive of the institute Professor Ahmed Kumshe, recommended eleven-point action plans to the government as follows: “that 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.
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.
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 organizations 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.
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 extravagancy amid widespread poverty.
The savings from the subsidy removal and subsequent accretion to the federation account should be applied in a manner that will optimize 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 prioritize 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).
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.
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 minimize 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.
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.
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.
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.
Finally, 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 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 program that will benefit the people and in line with fiscal responsibility legal framework. Again, chartered accountants are position to lead in the accountability and transparency required here,” he said
