March 15, 2021/Proshare

by FBNQuest Group

The NBS has distributed data on the local collection of company income tax (CIT) by identified sector for last year. Our chart shows percentage shares and excludes foreign payments of the tax and miscellaneous payments where the taxpayer is not classified per sector. Our adjusted total declined by 2.8% y/y in 2020 to NGN791bn (USD2.1bn). We might have expected a sharper fall in view of the recession and assumed that the authorities made further efficiency gains in collection. The largest share last year was that of professional services and telecoms, the most visible industry in many ways and the easiest to tax across the three tiers of government. The category includes the many firms of lawyers and accountants with offices in Nigeria for their domestic and regional business. 

We struggle to make any comments on other manufacturing, which achieved the second largest share in 2020, because there are separate categories for breweries, conglomerates, construction, and chemical and pharmaceutical firms. Food producers appear to be included.  

Banks and financial institutions have slipped from the head of the table in 2018 to third place last year. Several reasons for the dip in their profitability spring to mind, not least the pressures of inflation and COVID-related restrictions on their costs.  

Both federal and state ministries and parastatals are useful sources of CIT. Together, they raised 9.0% of our total in 2020.  

The miscellaneous local payments (not captured in our chart) are made electronically. The authorities will be pleased by the rise in total e-payments from NGN171bn in 2018 to NGN238bn last year while wishing, we suspect, that the increase had been more rapid.  

The collection of CIT is highly seasonal, peaking in the second and third quarters. The fourth quarter generates more revenue than the first. The broader point about the collection of CIT and other taxes in Nigeria is that it is too low for any government with a developmental agenda. The FGN’s total tax revenue in 2019 amounted to just 6.4% of GDP (3.6% oil and 2.8% non-oil).  For an oil producer of its size, it should be aiming for no less than 15% and closer to 20%. The ratio for Kenya in 2019 was 18.0%. 

The ultimate source of the data is the Federal Inland Revenue Service, Nigeria’s largest tax collection agency which is responsible, inter alia, for CIT, petroleum profits tax, stamp duty and most VAT. Its budget for 2020 was NGN5.06trn and it collected NGN4.95trn.

CIT payments by sector (% shares)

Sources: National Bureau of Statistics (NBS); FBNQuest Capital Research