Togo goes Parliamentary, Tax Rain in Nigeria & Climate Policy Needed for East Africa

Welcome back to the Vault.

This week in the vault:

  • ECOWAS bites its lips as democracy takes a new twist in Togo
  • It’s raining taxes (and tax policy) in Nigeria
  • Cyclone impact in East Africa forces policy actions in Kenya
  • Nigeria makes initial change to minimum wage with promise of more to come

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ECOWAS bites its lips as democracy takes a new twist in Togo

The Togolese parliament recently approved a new constitution that appears to tighten and extend President Faure Gnassingbe’s hold on power for at least another decade, drawing serious flak from opposition groups who labelled it a “constitutional coup”. Despite criticism that the constitutional changes lacked public input escalating arrests, and bans against protests, there has been no public reaction from ECOWAS.

In April, ruling party politicians unanimously voted to change the way the leader of the country assumes office.

Rather than the current presidential system where the leader is voted into office by direct elections, a parliamentary system has been adopted in the new constitution that has now been signed into law by the President.

  • The constitution creates a new office of ‘President of the Council of Ministers’, who oversees the day-to-day operations of the government like a Prime Minister – and in effect, occupies the same position as the current President. The President of the Council of Ministers will be selected from / by the party with majority seats in the Parliament or a coalition of parties, where a party is unable to secure the required majority.
  • The occupant of the position (of President of the Council of Ministers) will have a term of office of 6 years in each instance, with no term limits, sparking fears that President Gnassingbe intends to transition to the role of President of the Council of Ministers and exempt himself from facing national elections in future. He could then remain in office for terms of 6 years each if his party continues to retain control of the Parliament.
  • The ruling party has already been declared outright winner of the April 29 legislative elections, taking 108 out of 113 seats, paving the way for his selection as President of the Council of Ministers next year. Under the previous constitution, President Gnassingbé would only have been able to contest for president one more time – a move also secured from a previous constitutional change.
  • The position of the President will become largely ceremonial when President Gnassingbe’s latest tenure ends next year.

Despite its open condemnation of military interventions that have curtailed democracy in several of its member countries, ECOWAS has largely kept mute in the face of a potential extension of President Gnassingbe’s leadership beyond the 19 years since he took over as President – a potential recipe for yet another coup within the West Africa subregion. The silence from ECOWAS strengthens the view that the regional bloc is uninterested in condemning attempts by Presidents to circumvent rules that elongate their time in office. If the situation in Togo were to degenerate into a crisis or result in a military coup, ECOWAS is unlikely to have the moral suasion to intervene in any material manner.

On the other hand, ECOWAS may have grown wary of intervening in the political situation in Togo, especially as this is not the first time that President Gnassingbe has tweaked the constitutionto preserve his own power. ECOWAS faced a similar situation in 2019, when it facilitated dialogue between the government and opposition groups, with limited results.

It’s raining taxes (and tax policy) in Nigeria

To shore up the treasury and reduce the nation’s large fiscal deficit, key agencies of Nigeria’s federal government have directed banks and other financial institutions to begin collection of several taxes and levies – a move that has drawn the ire of many Nigerians who are still reeling from (partial) removal of fuel subsidy, devaluation of the Naira, high inflation, and an increase in electricity tariffs.

A timeline of recent tax developments are as follows:

  • In December 2023 / January 2024, the Federal Inland Revenue Service (“FIRS”, the federal government’s tax agency), tasked banks with the responsibility for deduction of N50 (fifty Naira) as electronic money transfer levy (“ETML”) from foreign currency transactions. The levy is on account of the Finance Act 2020 and Stamp Act 2004, which impose an EMTL on transfer for funds deposited in a financial institution.
  • In January 2024, banks were asked to deduct stamp duty on old foreign transactions between January 2021 to December 2023 by January 31, 2024. Previously, the ETML only applied to accounts receiving electronic deposits of N10,000 and above or its equivalent.
  • In late March 2024, banks were directed to deduct and remit 0.375% on the principal loan amounts disbursed by them.
  • On Monday, the Federal Inland Revenue Service (“FIRS”) asked all Nigerian banks to deduct stamp duty at the rate of 0.375% on loans backed by legal mortgage, shares, debentures, or bonds, and remit same to the FIRS. The charge is applied on the value of the relevant legal mortgages, shares, debentures or bonds.
  • On Tuesday, banks notified customers of their intention to collect a Cybersecurity Levy, following a directive from the office of the National Security Adviser for full implementation of the recently revised Cybercrimes Act. The Act requires collection, by financial institutions, of a Cybersecurity Levy at the rate of 0.5% of the value of electronic transactions (except those exempted in the law, such as salary payments, pension payments, loan disbursements and repayments, savings and deposits, treasury bills, bonds, commercial papers), tuition payments, etc.) Click herefor full list of exemptions.

On a related note, the President’s Committee on Fiscal Policy and Tax Reforms, has released a draft National Tax Policy for public review. When finalized, it is intended to set broad parameters for taxation in Nigeria and ensure that fiscal goals “are aligned, properly coordinated and effectively harmonized across the tiers of government.” From a target perspective, the proposed Tax Policy aims to, amongst other objectives:

  • protect the poor and vulnerable population;
  • simplify Nigeria’s tax system by enabling convenience, certainty, equity and fairness, transparency, etc.;
  • improve the ease of doing business;
  • eliminate activities of non-state actors; and
  • focus on optimization of income, consumption and property taxes.

Cyclone impact in East Africa spotlights need for policy establishment and implementation

The recent weeks have presented difficult challenges for Kenya and Tanzania, as both East African countries battle humanitarian crises caused by floods and aftermath of a cyclone in the region. The slow response by both countries, despite early warnings, has underscored the urgent need for policy reforms aimed at strengthening disaster preparedness and response mechanisms.

Reports from both nations have revealed the devastating impact of the floods on lives and communities, reaching alarming levels and exposing shortcomings in crisis management. The death toll in Kenya has surpassed 200, while over 212,000 people have been displaced. Schools have also been closed and business activities have slowed down due to consistent heavy rainfall. Forecasts predict that heavy rainfall will likely intensify this month, further raising fears and highlighting the need for an urgent response.

As people in the affected areas take stock and recover from the havoc, it appears that Kenya’s implementation of its Affordable Housing Policy helped to reduce greater loss of lives. Over 163,000persons had previously been evacuated from high-risk areas along riverbanks in informal settlementsin Nairobi, thereby minimizing the number of potentially vulnerable persons. Going forward, the Kenyan government should prioritize implementation of its climate change mitigation strategies, such as the Kenya National Landscape and Ecosystem Restoration Plan, which aims to plant 15 billion trees and increase Kenya’s forest cover to over 30 percent by 2032.

The severe impact of the cyclone heightens the need for the affected countries to either develop or implement (as the case may be) policies / strategic plans for tackling environmental threats. It may, perhaps, also be useful for the East African countries to consolidate their plans and develop a coherent regional strategy to combat climate-related challenges.

Data Vault: Nigeria announces new minimum wage

The Nigerian government recently announced an initial increase in monthly wages for public sector workers. The increase would be around 25% to 35% for the different salary structures in the Nigerian civil service. Raising workers’ pay is part of President Bola Tinubu’s strategy to ease hardship after removing fuel subsidies and exchange rate devaluation, which exacerbated the cost of living across the country. Despite this increase, the Nigeria Labour Congress President, Joe Ajaero, has rejected the pay increase, proposing a monthly living wage of 615,000 Naira.

A committee set up by the President, which includes representatives from both public and private sector (including the labour leaders), are still in negotiations for a new minimum wage that will take effect from 1st May 2024.

Nigeria’s minimum wage over the years

Source: Akintayo et al., 2020 & Policy Vault

The Nigerian government recently announced an initial increase in monthly wages for public sector workers. The increase would be around 25% to 35% for the different salary structures in the Nigerian civil service. Raising workers’ pay is part of President Bola Tinubu’s strategy to ease hardship after removing fuel subsidies and exchange rate devaluation, which exacerbated the cost of living across the country. Despite this increase, the Nigeria Labour Congress President, Joe Ajaero, has rejected the pay increase, proposing a monthly living wage of 615,000 Naira.

A committee set up by the President, which includes representatives from both public and private sector (including the labour leaders), are still in negotiations for a new minimum wage that will take effect from 1st May 2024.

What we are also following

We’re also tracking some events in the news, and how they may affect the decisions of policymakers.

Rwanda | Rwanda plans to increase spending by 11% in 2024 / 25

Rwanda plans to increase its overall spending by 11% to 5.69 trillion Rwandan francs ($4.43 billion) in the next financial year starting in July, with 1.32 trillion francs coming from external loans and 3.86 trillion francs from domestic revenues. An additional 725.3 billion francs will be sourced from external grants.

Rwanda’s Finance Minister Uzziel Ndagijimana presented the draft budget to parliament, with final budget presentation scheduled for June. Despite challenges like climate change effects and global inflation, Rwanda maintains strong economic growth momentum, with forecasts of 6.6% growth this year and further growth in the coming years. The economy, largely dependent on agriculture, tourism, and manufacturing, expanded by 8.2% last year, surpassing its initial target.

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