Increased VAT Rate Lifts Revenue Collection 8.45% to ₦651.77bn

Increased VAT Rate Lifts Revenue Collection 8.45% to ₦651.77bn

Revenue from value added tax (VAT) spikes by 8.45% to ₦651.77 billion in the first half of 2020 (H1:2020), data from the Nigerian Bureau of Statistics shows.

The increase is due to the implementation of the 50% increase in VAT rate to 7.5% which kicked-off in February 2020.

In the first half of 2019, VAT revenues for the period settled at ₦600.98 billion in H1 2019,

Of the ₦651.77 billion generated in H1:2020, ₦335.82 billion representing 51.52% was collected as non-import VAT locally.

Also, ₦161.74 billion accounting for 24.82% was generated as non-import (foreign) VAT, while Nigerian Custom Service (NCS) import VAT received was  ₦154.21 billion which was 23.66% of the sum.

Further breakdown of the non-import VAT generated locally revealed that VAT revenue from Professional Services sector was the highest at ₦75.92 billion.

This was closely followed by Other Manufacturing sector which generated ₦67.63 billion.

Other sectors that generated above ₦20 billion include commercial and trading (₦31.10 billion), Breweries, Bottling and Beverages (₦24.77 billion), States, Ministries and Parastatals (22.51 billion) and Transport and Haulage Services (₦20.30 billion).

However, locally generated VAT from sectors such as Minning, Textile & Garment and Pharmaceutical, Soap & Toiletries, remained low as their respective revenue contribution stood at ₦127.58 million, ₦499.19 million and ₦648.78 million.

In the monetary sector, the Central Bank of Nigeria (CBN) depository corporation survey showed a 3.54% rise in broad Money Supply (M3 money) to ₦35.35 trillion in H1:2020.

This resulted from a 13.67% increase in Net Foreign Assets (NFA) to ₦7.58 trillion which was also supported by a 1.09% rise in Net Domestic Assets (NDA) to ₦27.77 trillion.

On domestic asset creation, the increase in NDA was chiefly driven by a 6.23% jump in Net Domestic Credit (NDC) to ₦38.05 trillion in H1:2020.

Further breakdown of the NDC showed a 4.13% decline in Credit to the Government to ₦8.86 trillion; however, Credit to the Private sector rose by 9.85% rise to ₦29.18 trillion.

On the liabilities side, the 3.54% increase in M3 Money was driven by the 10.48% increase in M2 Money to ₦32.17 trillion in H1:2020, but was offset by a 36.71% fall in treasury bills held by money holding sector to ₦3.17 trillion.

Cowry Asset explained that the increase in M2 was propelled by 18.14% rise in narrow money (M1) to ₦12.20 trillion.

Of which Demand Deposits increased by 21.69% to ₦10.31 trillion, and currency outside banks, rose by 1.92% to ₦1.89 trillion.

This was accompanied by a 6.27% rise in quasi money (near maturing short term financial instruments) to ₦19.97 trillion.Increased VAT Rate Lifts Revenue Collection 8.45% to ₦651.77bn

Reserve Money (Base Money) strongly rose by 57.97% to  ₦13.26 trillion as Bank reserves sky rocketed by 78.37% to  ₦10.96 trillion, accompanied by a 2.27% rise in currency in circulation to  ₦2.30 trillion.

Read Also: “FIRS VAT claim on NRC services may impact cost of doing business in Nigeria”

“We expect to see inflow from the VAT line of federally collected revenue to further rise in H2 2020 as the negative effect of COVID-19 pandemic on economic activities eased at the end of Q2 2020 amid relaxation of restriction on movement by the federal government”, analysts said.

Howbeit, analysts explained that the 50% rise in VAT partly impacted the purchasing power of citizens as inflation climbed higher to 12.56% in the month of June.

“We commend the monetary authority for its strategic initiative in strongly increasing credit to the real sector businesses at lower rates”, Cowry Asset stated.

Increased VAT Rate Lifts Revenue Collection 8.45% to ₦651.77bn