Declined Revenue from CIT Reflects Weak Economic Condition – Analysts

Declined Revenue from CIT Reflects Weak Economic Condition – Analysts

Analysts have said that the reported drop in corporate income tax (CIT) collection is a reflection of the current economic situation in Nigeria.

Thus, some pundits advised Federal Government to ameliorate some long standing bottlenecks that drag tax paying companies’ profitability performance.

Noting that the reduced income from CIT weakened FG’s fiscal strength, analysts CSL Stockbrokers Limited believe that improve corporates earnings would translate to higher CIT collection.

The firm said in a commentary that efforts should be concentrated on improving the Nigerian business environment to ameliorate some of the long standing bottlenecks that has dragged business profitability and consequently CIT collections.

Though, analysts think lower revenue that projected is as a result of the outbreak of coronavirus pandemic which had necessitated economic activities lockdown in the first half of 2020.

Data from the Nigerian Bureau of Statistics (NBS) revealed that total corporate income tax collections for 9M-2020 printed at ₦1.1 trillion, declining 11.9% year on year compared with the ₦1.3 trillion collected in 9M-2019.

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Though, it was noted that CIT data indicates some resilience in the third quarter, quickening the pace of generated income recorded so far in the year, according to Greenwich Merchant Bank in a note.

Meanwhile, yearly assessment indicated a steep fall of 20.13%, though CIT improved by 3.48% in third quarter above amount recorded in the second quarter to ₦416.09 billion.

At ₦244.70 billion, domestic sources accounted for 58.8% of the total income generated compare to 51.0% in Q3:2019.

Meanwhile foreign sources made up a record low share of 16.9% or ₦70.34 billion.

Sectorially, the Professional Services including Telecoms led the pack, with a bulk of ₦55.52 billion, followed by Other Manufacturing (₦42.03bn), and the Banks and Financial Institutions (₦24.05bn).

The Mining Industry, on the other hand, contributed the lowest, trailed by Textiles and Garment (₦167.51bn), as well as the Local Government Councils (₦321.7bn).

The decline resulted from laudable palliatives adopted to stave off the negative impacts of the COVID-19 pandemic, which at the start of the year were expected to ease the burden on tax remittances.

Greenwich Merchant Bank said the steps ranged from the extension of filing for CIT returns, to increased use of the FIRS electronic platforms.

However, it explained that vulnerabilities in the form of shortage in business activities, weakened domestic demand and investments weighed down on most companies.

Greenwich said it is also worth noting that the Corporate Income Tax (CIT) budgeted figure for the first half of 2020 stands at ₦899.31 billion, of which the realized figure pegs at ₦671.56bn or 75% as of half-year.

On a broader view, analysts said taxation across developing economies are expected to experience a dramatic fall in their average tax-to-GDP ratio in 2020, according to the IMF.

“As a result, we believe that considerations should border around long-term incentives to taxpayers that presents opportunities for businesses to snap back to pre-pandemic levels”, Greenwich noted.

It explained that these measures may include tax holidays or short-termed tax reductions, particularly for sectors disrupted by the COVID-19 pandemic.

To the firm, this should provide businesses ample time to recover from the effects of COVID-19.

In addition, increased public spending during the peak of the pandemic, particularly on health facilities precipitated a rise the government’s expenditure.

As well, dampened the government’s capacity to earn, coupled with the current stance in the oil market.

Greenwich reckoned that tax administrations should be prepared to explore other means of fuelling the economy, as tax collections might remain a dampener to the governments’ projected revenue.

In a commentary note, CSL Stockbrokers thinks the recovery in Q3-2020 is largely reflective of gradual removal of covid-19 restrictions which spurred recovery in economic activities in Q3 2020.

Analysts said the year on year weakness in Q3-2020 and 9M-2020 CIT collections reflects yearlong pressures from the pandemic as well as slowing economic activities.

The firm however observed that payments via electronic channels grew 99.9% year on year in Q3-2020 standalone and 222.3% quarter on quarter from Q2-2020.

“We consider the growth in electronic collections hugely impressive considering significant efforts put into digitising the tax collection process.

Read Also: Income tax: FIRS inaugurates online portal for financial institutions

“We note that payments via these channels were not grouped into sectors which makes sectorial comparison difficult”, CSL explained.

Furthermore, analysts also highlight that CIT collections form a key part of non-oil revenue for the Federal government.

Thus, the decline reflected in collections clearly contributes to the government’s weakening fiscal strength amidst weaker oil production and lower oil prices.

“Efforts should be concentrated on improving the Nigerian business environment to ameliorate some of the long standing bottlenecks that has dragged business profitability and consequently CIT collections”, CSL Stockbrokers advised.

Declined Revenue from CIT Reflects Weak Economic Condition – Analysts

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