VAT Income Boosts Nigeria’s Non-Oil Economy, Analysts Positive on Outlook
Nigeria’s improved value-added tax (VAT) collection continues to drive growth in the non-oil sector, resulting in significant diversification away from a hydrocarbon-powered economy.
The recent tax reform has changed Nigeria’s non-oil revenue story, boosting the country’s fiscal revenue-generation capacity through higher collections.
According to the National Bureau of Statistics (NBS), total VAT collections rose to ₦2.42 trillion in Q1 2026, representing a 9.98% quarter-on-quarter (QoQ) increase from ₦2.20 trillion recorded in Q4 2025 and a 17.06% year-on-year (YoY) increase compared with the corresponding period of 2025.
In a note, analysts at Cowry Asset Management Limited said the sustained expansion in VAT receipts reflects improving tax administration, stronger compliance, and continued growth across key sectors of the economy.
The composition of VAT collections highlights the increasing importance of domestic economic activities in supporting government revenue, the investment firm said in its review.
Of the total VAT generated during the quarter, local VAT payments accounted for the largest share at ₦ 1.11 trillion, while foreign VAT payments amounted to ₦830.47 billion and import VAT contributed ₦477.55 billion.
The continued strength in foreign VAT receipts further reflects the growing contribution of digital services, cross-border transactions, and expanding e-commerce activities, reinforcing the success of recent tax reforms aimed at broadening Nigeria’s non-oil revenue base.
Sectoral analysis shows that Manufacturing remained the largest contributor to VAT collections during the review period, accounting for 29.75% of total VAT receipts.
The sector also recorded a 12.82% quarter-on-quarter increase, reflecting sustained industrial production, stronger domestic demand, and improved capacity utilisation.
The sector’s dominant contribution underscores its strategic importance to Nigeria’s economic diversification agenda and its continued role as a major source of government revenue.
The Information and Communication sector retained its position as the second-largest contributor, accounting for 20.61% of total VAT collections, while Mining and Quarrying ranked third with a 12.32% share.
The robust performance of the ICT sector reflects the continued expansion of telecommunications, financial technology, digital services, and internet-based commerce, while Mining and Quarrying continued to benefit from sustained activities within Nigeria’s extractive industries.
Together, these sectors continue to demonstrate the growing diversification of Nigeria’s tax revenue sources beyond traditional oil receipts.
In terms of quarterly growth, Activities of Households as Employers and Own-use Production recorded the strongest increase, expanding by 74.36%, albeit from a relatively low base.
This was followed by Arts, Entertainment and Recreation, which grew by 20.91%, reflecting improving consumer spending on discretionary services, while Manufacturing recorded the third-highest growth at 12.82%.
These performances indicate that consumer-facing sectors continued to recover despite prevailing macroeconomic headwinds, Cowry Asset stated. Conversely, several sectors recorded significant declines during the quarter.
Education posted the steepest contraction with a 31.96% decline, followed by Public Administration and Defence at 31.38%, while Activities of Extraterritorial Organisations and Bodies declined by 29.89%.
Cowry Asset said these contractions may reflect lower taxable transactions, reduced public-sector spending, and softer business activity across these segments, highlighting the uneven pace of economic recovery.
From a macroeconomic perspective, analysts said the continued increase in VAT collections provides encouraging evidence that Nigeria’s non-oil economy remains resilient despite high inflation, elevated interest rates, and foreign exchange adjustments.
Strong VAT growth generally reflects increased business transactions, improving consumer demand, and enhanced formalisation of economic activities.
More importantly, the steady expansion in non-oil tax revenue supports the Federal Government’s fiscal consolidation efforts by reducing excessive reliance on volatile crude oil earnings and strengthening revenue sustainability.
“Looking ahead, we expect VAT collections to remain on a positive trajectory over the remainder of 2026, supported by continued improvements in tax administration, stronger compliance, expanding digital transactions, and sustained growth across key productive sectors.
“Nevertheless, downside risks remain, including persistent inflationary pressures, high borrowing costs, and softer consumer purchasing power, which could moderate the pace of VAT growth in subsequent quarters”, Cowry Asset Limited explained.Nigerian Government Raises N19trn from T-Bills, Bonds in 6 Months
