Nigeria made N1.53trn from company income tax in 3 months, VAT rises by 10%

The National Bureau of Statistics (NBS) yesterday released a report revealing that Nigeria experienced a significant increase in tax revenue collection during the second quarter of 2023. Per the report, the Federal Government collected N1.53 trillion from company income tax (CIT), which is a remarkable growth rate of 226.4% compared to the N469.01 billion collected in Q1, 2023.

Furthermore, Value-Added Tax (VAT) revenue for Q2 surged from N709.59 billion in the previous quarter to N781.35 billion, reflecting a growth rate of 10.11 per cent.

The surge in CIT collection from N469.01 billion to N1.53 trillion in the span of a quarter might not be unconnected with the new administration’s drive to increase government revenue through fiscal measures. Upon assumption of office, President Bola Tinubu set up a panel to reform the country’s tax laws and fiscal policy in a bid to boost revenue generation and curb borrowings.

The government plans to transform the tax system to support sustainable development and achieve a minimum tax-to-gross domestic product ratio of 18% within the next three years. Nigeria’s tax revenue as a share of GDP was 10.9% in 2021, well below the 34.1% average from members of the OECD and one of the lowest globally.

The government projects that the reforms could raise $26 billion in revenues separate from those recouped from the scrapping of the fuel subsidy that cost $10 billion last year and the removal of some exchange rate restrictions.

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More on the Revenue numbers

On a sectoral contribution, various industries experienced varying degrees of growth in CIT contributions. Notably, water supply, sewerage, waste management, and remediation activities recorded the highest CIT growth rate at an astounding 626.52%.

Accommodation and food service activities are closely followed, with a growth rate of 585.11%. This substantial growth can be tied to a rebound in the tourism and hospitality sectors, showing significant progress from the COVID-19 pandemic restrictions that crippled the sectors in 2020 and 2021.

In stark contrast, the education sector experienced a CIT collection decline of -15.48%, signifying potential challenges or reduced profitability in the field. Public administration, defence, and compulsory social security also showed a slight growth rate of 25.46%, highlighting areas where government intervention or fiscal policies may be necessary to stimulate economic activity and revenue generation.

Manufacturing and ICT lead in tax revenue

In terms of sectoral contributions, the data reveals that manufacturing emerged as the leading contributor to CIT revenues, accounting for 25.63% of the total collection. The manufacturing sector’s performance continues to highlight its pivotal role in Nigeria’s economic landscape and why the FG needs to focus on getting Nigeria’s productive economy working again.

Apart from the potential job and wealth creation, the sector is key in the nation’s quest for diversification away from oil dependency. It can also help Nigeria reduce its heavy reliance on imports, improve its trade balance, and increase its foreign exchange performance. 

Financial and insurance activities secured the second-highest share with 24.47 percent, underscoring the importance of the financial sector in generating government revenue. The financial sector’s steady contribution reflects ongoing banking and financial activities, including lending, investment, and insurance services. This is coupled with the robust fintech industry, which has become one of the Nation’s booming tech sectors.

Information and communication ranked third in CIT contributions, comprising 20.3% of the total. The growth in this sector can be attributed to the rapid expansion of telecommunications and technology services in Nigeria. The 5G broadband expansion, through licence sales, has become a useful revenue source for the country in recent months.

Sectoral contribution to VAT

In addition to CIT, VAT collections also showed a positive trend during Q2 2023. VAT revenue increased by 10.11%, from N709.59b in Q1 to N781.35b in Q2. This growth indicates sustained economic activity within the country, with consumers and businesses continuing to spend and invest.

The sectoral breakdown of VAT contributions also reveals manufacturing as the dominant sector, contributing 29.64% of total VAT collections. ICT followed closely, accounting for 21.19% of VAT collections. Financial and insurance activities also made a significant contribution, representing 11.18% of total VAT collections.