Earlier this week, the Federal Ministry of Finance directed the immediate suspension of the 4% Free on Board (FOB) charge levied by the Nigeria Customs Service on all imported goods.
The directive, issued in a letter on Monday by Wale Edun, the minister of finance, was the federal government’s reaction to concerns expressed by businesses and importers that the levy would create an “increased financial burden,” with potential negative impacts on inflation, trade competitiveness, and the country’s overall business climate.
According to Mr Edun’s letter, the 4% FOB levy presented “significant challenges to the Nigerian trade facilitation, environment and economic stability.”
The Nigeria Customs Service had defended its introduction of the levy saying it is supposed to “serve investments in technology”.
How much do we know about this new levy?
FOB: What does this mean?
FOB stands for Free-on-Board. It is a common international shipping terms; it is a way for a buyer and seller to agree on who pays for the shipping costs and who is responsible for the goods at different points in their journey.
The “FOB value” of a shipment is the total cost of the goods once they have been safely loaded onto a shipping vessel at the port of origin. This value includes the cost of the goods themselves, as well as all costs incurred by the seller to get them ready for export—like packaging, transportation to the port, and export customs paperwork.
Once the goods are “on board,” the financial responsibility and risk of damage or loss transfers to the buyer. This FOB value becomes the base for calculating certain import taxes and charges in the destination country.
Why the FOB charge in Nigeria is a big deal
In Nigeria’s case, the recently suspended 4% FOB charge was a specific levy on the free-on-board value of imported goods. This fee was not a regular customs duty but a primary funding source for the Nigeria Customs Service (NCS), as mandated by the Nigeria Customs Service Act of 2023.
The idea was to provide a stable and transparent funding mechanism for the NCS’s operations, which include modernizing technology and improving trade facilitation.
However, many businesses and importers voiced strong concerns that adding this 4% levy would significantly increase the cost of importing, leading to higher prices for consumers and potentially hurting the economy.
According to reports, that the introduction of the Nigeria Customs Service’s 4% Free-on-Board (FOB) collection pushed up the cost of bringing goods into the country by as much as 186% for certain merchandise.
The Importers Association of Nigeria (IMAN) had estimated that the charge adds an estimated N4 trillion annually to freight costs, a burden that would be transferred directly to final consumers.
In response to this outcry, the government stepped in and suspended the levy.
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