Against the groundswell of opposition to an unpopular 10 percent duty on solar panels, the Nigerian Customs Service says it is enforcing the tax to encourage local manufacturing of solar panels.
Anthony Anyalogu, head of classification at the Nigerian Customs Service, in a presentation at the Nigerian Energy Forum on Wednesday, explained that a key reason for the duty on solar panels was to encourage local manufacturing of solar PVs and that it was only enforcing the government fiscal policy, not inventing a new one.
Anyalogu, in his presentation, said the tariff was not a new one and agitations against the tariff did not factor in explanatory notes to HS Codes 8501 that explained inclusions and exclusions of the tariff codes.
“Photovoltaic generators consist of panels of photocells combined with other apparatus, like storage batteries and electronic controls, voltage regulator, and inverter, among others.
“It also covers panels or modules equipped with elements, however simple (for example diodes to control the direction of the current), which supply the power directly to, for example, a motor, an electrolyser etc. As long as these are included, it attracts duty,”
“These solar panels are not even manufactured in Nigeria. So, should we not encourage local industries?” he asked.
“Furthermore, the relevant exclusion notes from the provisions of the explanatory note, Vol. 5, p – XVI-8541-3 on Heading 8541, which clarifies that, “the Heading does not cover panels or modules equipped with elements, however simple (for example, diodes to control the direction of the current). This implies that such panels are classified under Heading 8501 (which requires duty).”
The Nigerian Customs’ position is that only solar panels that are imported into the country without a charge controller, which can only be used as signal, is exempt from import duty.
“All importations of solar panels made up of the solar modules, diodes and junction boxes should be classified on the appropriate commodity code of heading 8501 according to the power capacity at 5% duty and 5 percent VAT in tandem with extant ECOWAS Common External Tariff (CET) 2015 – 2019,” said Anyalogu.
While this rule has been in the books for a long time, the Nigerian Customs Service began its enforcement this year when it found out that the volume of containers bringing in solar panels into the country driven by new off-grid investments have quadrupled.
While it is Nigeria’s fiscal policy, the Customs has largely ignored its enforcement for many years and has suddenly woken up to the reality and without notice to the operators, began demanding the tariff. This is why many operators at first, thought it was a new rule.
“Even if they have to introduce a new tariff, they should at least give operators a moratorium of at least 6 months so we can change our business models,” Femi Adeyemo, a co-founder of Arnergy Solar Ltd said.
The challenge for operators is that many of these containers trapped in the port due to the introduction of this duty were purchased based on calculations that excluded duties and would be retailed on this assumption.
A key challenge for foreign direct investments into Nigeria, according to analysts, is regulatory uncertainty. This is why Nigeria is perceived as unserious since fiscal policies show lack of intellectual rigour and the absence of a blueprint.
Operators say this new tariff will kill this bourgeoning sector but a government that is only short-sighted will see improvements in its temporary revenue rather than an opportunity to provide gainful employment for millions of its citizens without jobs.
Anyalogu’s argument that the tariff is to encourage local manufacturing rings hollow, considering that Nigeria still imports pencils and toothpicks. Private schools import uniforms for primary school students and a local solar panel assembling firm said it is cheaper to import a container load of panels from China than to move it from Lagos to Aba.
Power cost eats up to 40 percent of all expenses for manufacturers. Nigeria is the world’s biggest importer of generators, roads are deplorable and the country’s obsession with crude oil has led to neglect of other critical sectors. It is incredulous the government will suddenly start encouraging the manufacture of solar panels.