In an emailed statement yesterday, Nigeria’s Federal Inland Revenue Service (FIRS) informed companies in the country about a one-month window that would enable them settle all their outstanding dollar tax debts in naira, amid the forex shortage.
Business Insider Africa understands that the concession would end by March 31st, meaning that companies have between now and the next few weeks to take advantage of the opportunity, unless they have other options.
The one-month window is open to companies whose foreign currency tax liabilities were due on or before December, 2021. The FIRS said all upstream oil and gas companies would be excluded from the window, meaning they would have to pay their taxes in dollars nonetheless.
It should be noted that Nigeria typically requires companies to pay taxes for all foreign transactions in the currency that the transactions were carried out in. However, in view of the dollar shortage, the country will now temporarily relax this policy.
Recall that after oil prices crashed in 2020 due to the adverse effects of the pandemic, many Nigerian companies have been struggling to raise enough dollars to facilitate raw materials importation as well as to settle their tax debts. Nigeria’s apex bank, the Central Bank of Nigeria, has been unable to adequately meet all the dollar demands. Instead, it was forced to ration forex supply and devalue the naira.
Nigeria, which is Africa’s biggest economy by Gross Domestic Product (GDP) relies mostly on oil sales to earn foreign exchange. What this means, therefore, is that the fluctuations in global oil prices have a direct impact on the country’s economy, especially with regards to forex availability.
Now, even though crude oil prices have since surged to more than $130 per barrel following the Russian-Ukrainian crisis, the impact is yet to be felt in the Nigerian forex market.
Nigeria’s forex crisis points to the urgent need for the country to further diversify its exports in order to earn more foreign exchange. Business Insider Africa recently reported that the International Monetary Fund (IMF) said Nigeria has failed to diversify its exports. Only 47 new products were added to the country’s export portfolio between 1990 and 2020.