Tax Income to Boost Nigeria’s Fiscal Strength – Analysts
Amidst uncertainties, analysts said they expect tax income to boost the Federal Government of Nigeria’s (FGN) fiscal strength in the current year. Key challenges facing the economy has been weak fiscal performance that has continue to cause budget deficit extension annually.
Though large part of government earnings come from hydrocarbon sales, the economy remains well diversified and recently, non-oil revenue has started bucking the trend. Low revenue generation has forced government to embark on borrowings, a development that result to neck breaking debt load for an economy underperforming emerging markets peers.
According to data released by the National Bureau of Statistics (NBS), total collections from Company Income Tax (CIT) increased significantly by 226.4% in the second quarter of 2023 to N1.53 trillion.
The amount is the highest quarterly print on record. In the first quarter of the year, Nigeria raked in N469.01 billion amidst pressures in the local economy. The first three months of the year were characterised by pressures from the naira crisis and election activities.
Economic activities slipped sporadically as banking activities were affected by the Central Bank of Nigeria’s (CBN) failed demonetisation agenda.
“We believe the substantial increase was primarily driven by the combined impact of NLNG’s one-off end-of-the-year corporate tax payment, return to normalcy after the CBN’s naira-redesign-induced slowdown in CIT payments in Q1-23”, Cordros Capital said in a note.
The increase in tax revenue collection was majorly pushed by improved tax compliance, according to analysts. In the quarter, analysts observed that there was a broad-based increase across local collections, up 240.8% to N1.02 trillion and foreign CIT payments which rose 200.7% to N505.91 billion.
On a year-on-year basis, total CIT collection increased by 114.3% to N714.40 billion in Q2. “In the near term, we expect the impact of underwhelming demand and rising operation costs arising from FX liberalization and lingering increases in energy costs to slow down corporate performance and, subsequently, CIT collections.
“Nonetheless, we expect the collections from CIT to remain upbeat relative to the prior year, given an increase in voluntary tax compliance and improvement in the automation of the tax administration process”, Cordros Capital said.
According to the NBS, VAT collections in Q2 settled higher by 10.1% to N781.35 billion relative to Q1 when collection was N709.59 billion.
“We note that the improvement in VAT collection in the review period was in line with the lingering increase in prices of goods and services and continued improvement in the automation of the country’s tax administration processes, including the updated VAT filing processes2.
Accordingly, local jumped 17.4% in the quarter to N512.03 billion and Nigeria customer (NCS) import VAT collection rose 3.5% to N126.69 billion, counterbalancing the decline in foreign VAT collection which fell by 5.6% to N142.63 billion.
On a year-on-year basis, collections from VAT increased by 30.2% (Q2-22: N600.15 billion), primarily supported by local VAT collections.
Without downplaying the slowdown in domestic demand arising from the short-term impact of lingering reforms, analysts said they think VAT collections will remain resilient over the rest of the year.
“We hinge our expectations on the lingering factors supporting VAT collections. Hence, we expect the combined impact of higher VAT and CIT collections to support FGN’s non-oil revenue over the short-to-medium term”, Cordros Capital analysts stated.
