The manufacturing sector, professional services, and State Ministries & Parastatals accounted for the most VAT generation during the period. Nigeria’s generated N496.4 Billion from Value Added Tax (VAT) in the first three months of 2021, the highest in nine years, BusinessDay analysis shows.

Data gleaned from the sectoral distribution of VAT receipt for the first quarter of 2021 from the National Bureau of Statistics (NBS) show that VAT revenue rose by 315.4 percent to N496.4 Billion from N119.5 Billion in the first three months of 2013, nine years ago. Although the bulk of government’s revenue comes from the oil and gas sector, the surge VAT receipt is a welcome development at a time when the country is trying to reduce its over-reliance on oil revenue and grow non-oil revenue.

The manufacturing sector, professional services, and State Ministries & Parastatals accounted for the most VAT generation during the period. Analysts say the surge was due to the increase in the VAT rate to 7.5 percent from 5 percent, an improvement in consumption and better enforcement by Federal Inland Revenue Service (FIRS).

“It is not surprising as it is a function of the increase in VAT rates. The economy is in a better footing now compared to where we were during the COVID crises,” Omotola Abimbola, a macro and fixed-income analyst at Lagos-based Chapel Hill Denham said. The Federal Government has been intensifying its efforts towards tax revenue collection in Nigeria. On January 13, 2020, the Finance Act bill was signed into law. The bill is targeted at raising additional revenue for the Government through the introduction of new fiscal measures.

VAT is known as a consumption tax levied on the price of a product or service at each stage of production, distribution, or sale to the end consumer. It is also an instrument of fiscal policy vital in generating revenue to finance the activities of government, redistribute income, stabilize the economy as well as stimulate growth and development. “The increase in VAT collection simply means there is more funds in the purse of the government at all levels to expand. This is expected to cushion the effect of low FAAC allocations to a lesser extent,” Moses Ojo, a Lagos-based Economic Analyst said.

Ojo however added that how the revenue is being spent is also important. “Whether the increased revenue will have an impact on infrastructure development, or whether it will be used for consumption”. A breakdown of the figure shows that on a quarter-on-quarter basis (Q4 2020 / Q1 2021), out of the total of 28 sectors, 13 of them recorded positive growth in VAT revenue, while 15 sectors recorded a decline in that period.

Furthermore, in Q1 2021, 0ther Manufacturing generated the highest amount of VAT with N49.41Billion generated and closely followed by Professional Services generating N42.50Billion, State Ministries & Parastatals generating N26.96Billion while Mining generated the least and closely followed by Pioneering and Textile and Garment Industry with N48.36Million, N77.01Million and N289.41Million generated respectively.

Out of the total amount generated in Q1 2021, N224.85Billion was generated as Non-Import VAT locally while N171.66Billion was generated as Non-Import VAT for foreign. The balance of N99.88Billion was generated as NCS-Import VAT. Since 2019, the FIRS has intensified efforts to capture e-commerce in the VAT net helping to boost revenue.

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