In the second quarter of 2023, tax revenue from both companies and consumers in Nigeria witnessed a remarkable surge of 96.11%, reaching a total of N2.31 trillion. This impressive increase represents a significant jump from the first quarter of the same year.
During the first quarter of 2023, the combined tax payment from companies and consumers amounted to N1.18 trillion, as reported by the National Bureau of Statistics. The substantial surge in tax collections during the second quarter is attributed mainly to a remarkable increase in Company Income Tax (CIT), which witnessed a quarter-on-quarter growth rate of 226.40%, reaching N1.53 trillion, compared to N469.01 billion in Q1, 2023.
This CIT report reveals that companies in Nigeria paid approximately N1.53 trillion in taxes to the government during the second quarter of 2023. Company Income Tax (CIT) is a 30% tax levied on corporate profits. According to available data from the National Bureau of Statistics, this marks the first time that companies have contributed over N1 trillion in taxes in a single quarter. It surpasses the annual totals for each of the years 2015, 2016, 2017, and 2018, indicating a significant increase. The highest amount previously collected in a single quarter was N810.19 billion in Q3 2023, while the lowest was N155.96 billion in Q1 2017.
Meanwhile, Value Added Tax (VAT), a 7.5% consumption tax borne by the end consumer of a product, increased by 10.11% quarter-on-quarter in Q2, reaching N781.35 billion, compared to N709.59 billion in Q1. The National Bureau of Statistics reported that in Q2 2023, CIT totaled N1.53 trillion, showing a growth rate of 226.40% on a quarter-on-quarter basis, with local payments contributing N1.02 trillion, and foreign CIT payments adding N505.91 billion. For VAT, it amounted to N781.35 billion in Q2, representing a quarter-on-quarter growth rate of 10.11%, with local payments accounting for N512.03 billion, foreign VAT payments at N142.63 billion, and import VAT contributing N126.69 billion in the same period.
The report highlights that various sectors witnessed significant growth in CIT and VAT. The sectors that showed the most growth in CIT include water supply, sewerage, waste management, and remediation activities (626.52%); accommodation and food service activities (585.11%); manufacturing (25.63%); financial and insurance sector (24.47%); and information and communication (20.30%). As for VAT, the sectors with notable growth included the activities of extraterritorial organizations and bodies (212.06%); real estate activities (123.09%); manufacturing (29.64%); information and communication (21.19%); and financial and insurance activities (11.18%).
Professor Akpan Ekpo, an economic expert from the University of Uyo, attributed the increase in VAT revenues to both the recent VAT rate hike and the growth in CIT, which he attributed to the efforts of the Federal Inland Revenue Service (FIRS). He explained that the VAT rate increased from 5% to 7.5%, resulting in a consistent rise in VAT collections. Nigeria has one of the lowest revenue-to-GDP ratios globally, making it susceptible to fiscal shocks. The International Monetary Fund (IMF) has recommended that Nigeria increase its VAT rate to 15% to improve its revenue situation.
To further boost tax revenues, the Nigerian Federal Government intends to review and reduce tax waivers granted to companies operating in the country. The Chairman of the Presidential Tax Reform Committee, Mr. Taiwo Oyedele, stated that Nigeria’s total tax incentives to companies amount to about N6 trillion annually. Oyedele emphasized the importance of periodically evaluating incentive regimes to ensure they promote economic growth efficiently. The government aims to close the N20 trillion tax gap through automated processes to enhance revenue collection.