By Adedapo Adesanya
As economic hardship bites harder, the Manufacturers Association of Nigeria (MAN) is calling on the federal government to remove the Value Added Tax (VAT) on Automotive Gas Oil (AGO), otherwise known as diesel to ease the problems faced by businesses in the country.
According to the Director-General of MAN, Mr Segun Ajayi-Kadir, the rising price of diesel has become very worrisome following its negative impact on businesses, especially the manufacturing sector of the economy.
He noted that the hike was due to the increase in the price of crude oil at the international market which had gone above $110 per barrel following the ongoing war between Russia and Ukraine, but stressed that the removal of VAT on diesel could help matters.
“Knowing also that diesel has been deregulated removes the question for a buffer to the cost.
“The law of demand and supply is at play here and since we have historically lacked local refining capability, we are left at the mercy of the vagaries of international price and the geopolitics of it.
“As long as the price of crude oil continues to go up, the price of AGO will equally skyrocket.
“It is now said to be selling at N750 per litre, up from about N300 per litre two months ago.
“Unfortunately, manufacturers who largely rely on diesel to run their factories due to unreliable nature of the grid power supply are contending with a huge cost to sustain their production line.
“The direct implication of this trend, as many Nigerians are already feeling the heat, is the reflective high cost of goods in the market owing to the high cost of production,” he said.
The MAN DG said that it was on record that manufacturers expended N100 billion yearly on alternative energy sources due to unstable electricity supply, which constituted between 30 to 40 per cent of their cost structure.
He said that the implication was that the manufacturing cost structure was thrown overboard; working capital depleted and capacity utilisation nose-dived.
“Since the average Nigerian’s disposable income has been depleted, we can only expect that the resulting higher prices of goods will further constrain purchases and aggravate the poverty level.
“The solution is rather complex since we are dealing with a deregulated industry as I earlier mentioned.
“In the short term, we can only look at how to get more favourable prices from the marketers; seek to remove other costs that are in the country such as Value Added Tax on AGO.
“We will also work with the government to reduce the pressure in other pain points for the manufacturers,” he said.
Mr Ajayi-Kadir then stressed the need to make the nation’s refineries work, incentivise the building of more refineries and generally ramp up the private sector players in the sector, including foreign ones.
