December 14, 2021/Proshare

by FBNQuest Research  

The NBS’s most recent quarterly series on revenue from VAT collection shows that total collections were up by 18% y/y to over NGN500bn. On a 9M ’21 basis, gross VAT collections totalled NGN1.5trn or an increase of  c.40% compared with NGN1.1trn in  9M ’20. The NBS series is compiled from data provided by the Federal Inland Revenue Service (FIRS). We observe that the Bureau has altered the way it classifies VAT revenues by sector. As such, direct y/y and q/q comparisons are not possible.

On an aggregate basis, import VAT collections by the Nigerian Customs Service and non-import (foreign) VAT were the two top revenue sources, accounting for c.25% and 16% of total VAT collections respectively. Excluding import and non-import VAT collections, gross collections by sector amounted to NGN295bn.

Amongst the sectors, manufacturing topped the list with total VAT collections of c.NGN90bn or c.18% of total VAT collections, or 31% when we consider VAT collections solely on a sector-wide basis. Manufacturing sector GDP grew by 4% in Q3. We see that the sector is gradually recovering from the effects of the pandemic-induced lockdowns, as Q3 marks the third consecutive quarter of growth. 

Information and communication was the second on the league table with a 20% share of VAT revenues per sector, and 12% in terms of gross VAT collections. Unlike other sectors that were adversely impacted by the pandemic, the sector benefited strongly from higher data consumption during the pandemic.

Mining and quarrying was third at around 6% of gross VAT collections, or c.10% on a sector wide basis. Given the artisanal small scale mining operations that dominate mining activity in Nigeria, we assume that the bulk of revenues here refers to collections from companies in the oil and gas and cement sectors.

The higher revenue outturn from VAT collections reflects a 250bp hike in the VAT rate to 7.5% in February ’20 (made in a bid to raise revenue from non-oil sources), as well as favourable base effects from the prior year’s quarter.

We see that total federally collected non-oil revenue for H1 ’21 was still a paltry 3.2% of FY ’20 GDP. Apart from hiking absolute rates of taxes such as the VAT rate, astute observers have suggested that the federal and state governments ramp-up collections in segments unintentionally ceded to informal non-state actors.