NIGERIA collected a total of 20.6 trillion from the thorny value-added tax (VAT) and company income tax (CIT) in 10 years, data gleaned from the National Bureau of Statistics (NBS) and the Federal Inland Revenue Service (FIRS) have shown.
According to the statistics, the country realised N11.25 trillion from CIT from 2011 to 2020. The amount exceeds N9.37 trillion VAT receipt in the period by 1.88 trillion or nine per cent.
The total amount realised from the two income sources has grown by approximately 165 billion year-on-year or nine percent on average in the period, suggesting their huge potential in raising the country’s dwindling revenue profile.
Besides 2017 when the revenue declined by 27 per cent to N1.8 trillion, growth in the streams has been consistent in the past decade.
The biggest leap was recorded in 2017 when the amount collected increased 24 per cent, from N1.8 trillion to N2.2 trillion. Though the impressive performance was majorly influenced by the previous year negative base effect as the revenue profiling was coming from a decline.
Despite the impacts of Covid-19, 2020 was the country’s best year in VAT and CIT collection. Its share of the decade’s overall performance was 14 per cent or 2.8 trillion, which came on the back of a 50 per cent increase in VAT rate.
It would be recalled that VAT was increased from five per cent to 7.5 per cent with effect from February 1, 2020, amid protest from the business community. The increase was captured in the 2019 Finance Act.
Following the increase, VAT revenue soared, surpassing CIT for the first time in almost a decade. Last year’s VAT was N1.53 trillion, exceeding N1.28 trillion earned from CIT by a whopping almost 10 per cent.
The previous year’s VAT exceeded CIT was 2011, and the difference was less than 0.5 per cent. The total VAT was 659 billion while CIT stood at 654 billion. It was the poorest year in terms of VAT/CIT generation in the past decade.
Southern states have taken up arms against the FIRS over the control of VAT amid high-level politicking around fiscal federalism. The Rivers State Government secured a historical ruling that reversed the practice but FIRS secured a stay of execution from a higher court.
Still, other states, led by Lagos touted as the most financially viable state, are exploring state-enacted laws to circumvent the Federal Government. As part of the ongoing arm-twisting, northern state governments have the Northern States Governors’ Forum (NSGF), on Monday, resolved to align with the Federal Government.
There is also scheming by FIRS and some lawmakers to smuggle VAT collection into the exclusive list in the expected amended constitution. If the plan scales through, it would cede the control of the supposed sales tax, which experts said should be administered by states, to the central government.
FIRS sympathisers have also argued that a large chunk of VAT is import-related, hence states will go dry should they go with an arrangement to domesticate VAT control.
NaijaTimes also fact-checked the claim that much of VAT revenue comes from import activities.
Of N9.37 trillion earned VAT from 2011 to last year, data show that Nigerian Customs Service (NCS)-import VAT revenue was N2.08 trillion while the non-import segment was N7.29 trillion. This implies that 78 per cent of the revenue was non-import related. It also means that non-import VAT was three times bigger than what was realised from import source.
While NCS-import VATed activities may have witnessed a gradual accretion, non-import VAT revenues have not slowed down enough to suggest that the wide gap could be closed soon. Last year, non-import VAT volume increased by 25 per cent, growing from N945.5 billion in 2019 to 1.18 trillion. On the other hand, NCS-imported VAT grew by 42 per cent, from N244.5 billion to 347.7 billion.
The least NCS-imported VAT was pooled in 2012 when N164.6 billion was realised just as the least non-import VAT came in 2011 – the base year of the analysis. Then, N492.1 billion was posted for the category.
Last year, professional services’ share of the total VAT was 13.7 per cent, making it the highest contributing sector. It was followed by other manufacturers with 13.07 per cent. Among the top 10 highest contributing sectors were commercial/trading, breweries/bottling and beverages, state ministries and parastatals, transport and haulage services, oil-producing, federal ministries/parastatals and banks/financial institutions. In the past five years, the index has remained unchanged except that the professional service sector and other manufacturers alternate the first and second positions.
Many states rely disproportionately on VAT revenues for their financial obligations. Data also reveals that states perceived as economically unviable depend more on VAT revenues than economically buoyant states.
In 2019, VAT share contributed 35.7 per cent to the total revenue of Gombe in 2019, for instance. Ebonyi, Ekiti, Bayelsa, Nasarrawa, Taraba and Yobe states sourced at least 25 per cent of the revenue from the share of VAT in the same year.
With 9.5 per cent, Bayelsa had the least internally generated revenue (IGR) to total revenue ratio last year. By implication, less than N9.5 out of every N100 the state earned came from the federation account. Other states with extremely poor IGR to total revenue ratios were Jigawa, Taraba, Adamawa and Niger states.
On the bright side, Lagos’ IGR to total revenue ratio was 78.3 per cent. The Federal Capital Territory (FCT) and Ogun State came second and third to Lagos with 57.8 per cent and 57.4 respectively while Rivers was fourth with 45.4 per cent. Interestingly only Lagos’, FCT’s and Ogun’s IGR share of total revenues crossed 50 per cent. Some experts have dismissed many states as unviable and near-insolvent on account of their poor revenue profile.
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