August 10, 2021/CSL Research

According to the data published by the National Bureau of Statistics (NBS), the total Value Added Tax (VAT) generated in Q2 2021 was N512.3bn, an improvement of 3.2% q/q and 56.6% y/y relative to N496.4bn in Q1 2021 and N327.2bn in Q2 2020, respectively. The VAT revenue collected in H1 2021 amounted to N1.0tn, up 54.8% y/y and the highest half-year number since NBS began publishing the data in 2013. We expect this to boost the government revenue position this year. Though the low base in the prior period supported the strong y/y growth seen, nevertheless, improved macro conditions since the reopening of the economy in Q3 2020 contributed to the sturdy growth.

In Q2 2021, further breakdown of the data revealed that VAT on Non-Import (foreign) contributed the most (41%), trailed by VAT on locally produced goods (i.e., Non-Import VAT; 37%) and VAT on imported goods (i.e., Import VAT; 23%). Across sectors, the biggest contributors to local VAT revenue were Other Manufacturing (24%), Professional Services (16%), Commercial and Trading (12%). Pharmaceutical, Soaps and Toiletries (0.1%), Pioneering (0.09%) and Textile and Garment industry (0.04%) had the lowest contribution.

Besides the impact of a low base, we believe the lifting of movement restrictions supported the sturdy y/y growth. To put into perspective, Mining recorded an increase of 16677.2% q/q and 12239.8% y/y to N8.1bn in Q2 2021. Also, Properties and Investments rose by 312.5% q/q and 352.7% y/y to N4.8bn in Q2 2021. This lends credence to the sustained positive trend seen in the real estate sector as the sector grew by 1.8% in Q1 2021.

VAT collections form a key part of the Federal Government’s non-oil revenue. Thus, the good revenue numbers from VAT collections indicate an improved outlook for government revenue position in 2021. We also believe the impact of the higher VAT rate of 7.5% compared with 5.0% previously contributed to pushing the H1 2021 VAT numbers to the highest half-year number since 2013.