How Nigeria’s auto policy encourages importation of damaged ‘Tokunbo’ vehicles - BUSINESSDAY
Five years into the implementation of the national automotive policy of 2013 introduced by the immediate past administration of ex-President Goodluck Jonathan, Nigerian car dealers have shifted attention to bringing in low quality and vehicles damaged by accident to cushion the effect of high import tariff on new and used vehicles and the recent devaluation of the naira.
The automotive policy increased the tariff on imported vehicles by imposing 35 percent duty and 35 percent levy, amounting to 70 percent tariff to be paid on the imported cars to the Nigeria Customs Service (NCS).
Musa Baba Abdullahi, Customs Area Controller of Tin-Can Command said that importers have resulted to bringing accident cars in order to enjoy 30 percent rebate in import duty.
According to him, for any vehicle to be considered involved in an accident and qualify for 30 percent rebate, some very important components of the vehicles such as the chassis, air bags and a large chunk of the body, must be certified damaged.
Statistics by the National Bureau of Statistics (NBS) shows that Nigerians imported 105,189 units of vehicles in 2016 through the ports, while in 2017 the volume of imported vehicles grew by 72.46 percent to hit 181,404.
“The quality of vehicles imported into the country has deteriorated over the last four years. This was partly due to the recession and the shrinking purchasing power of many people. Not everybody can afford a very expensive vehicle that is why people are importing older vehicles or accident vehicles, which are clearly cheaper,” said Ascanio Russo, managing director of a leading RoRo port, PTML in an interview with Ships and Ports in Lagos recently.
Russo blamed auto policy that increased the duty paid on imported vehicles by over 100 percent, and said that the auto policy has made importation of vehicles into Nigeria more expensive than before.
The reality, according to Russo, is that used vehicles are not luxury, which means that people are not buying used vehicles because they prefer them to new cars, but they buy them mostly due to price.
“We need cars in this economy, and this leads to people bringing in, for instance, trucks that are probably about 40-year old to reduce the impact of the auto policy, which makes it very expensive to import trucks into Nigeria. These are all economies of scale and negative externalities, which are very difficult to measure. People will look at how much it cost to reduce the level of duty,” Russo explained.
He suggested that government can only help the automotive industry by trying to make locally manufactured vehicles more competitive, adding that government can achieve that by supporting the industry with incentives like tax holidays. “This is to encourage people to come and invest, because the market cannot be protected by increasing the level of duty because people always find a way to meet their needs.
“Bringing in dented vehicles is one of the ways importers try to recoup from the money invested due to the high cost of exchange rate because dealers believe that it is cheaper and profitable to bring in such low quality cars, repair and sell,” said Tony Anakebe, a renowned industry analyst.
He confirmed that Customs offers rebate to the dealers when the cars are confirmed to be damaged, adding that over 70 percent of vehicles coming in through the port are accident damaged cars.
Ugochukwu Nnadi, a freight forwarder, who operates at PTML terminal, Tin-Can Island Port, confirmed that no importer goes to America or Europe to bring in new or quality vehicle due to the cost of the duty paid on vehicles.
“Vehicles are usually over-valued and over taxed by Customs. Five years into the implementation of the auto policy, Nigerian car dealers have begun to adjust to the current economic realities by going back to importing low quality vehicles,” he said.
According to him, when 15-year old vehicles come to Nigeria, the government over values them such that the Customs duty becomes higher than the price at which the vehicle was purchased. This, he said, was why the only vehicle that Nigerians can buy now is damaged vehicles because they are sold to dealers abroad at giveaway prices.