December 15, 2021/Proshare
by FBNQuest Research
Today’s chart is drawn from data on company income tax (CIT) produced by the National Bureau of Statistics (NBS) in conjunction with the Federal Inland Revenue Service (FIRS). The data show that total CIT collections for Q3 ’21 grew by 14% y/y to c.NGN473bn. However, on a sequential basis, collections were flat q/q. The sum represents the federation’s gross CIT receipts, the majority of which goes to the federal government.
The rise in tax collections, like the increase in VAT collections, is mostly due to the gradual pick-up in economic activity compared with the previous year and corresponds to the economy’s 4.0% GDP growth in Q3’21. Using the earnings performance of our coverage universe as a read-across, we see that most non-financial names delivered solid earnings growth in Q3 ’21.
Foreign CIT payments accounted for most of collections, accounting for roughly NGN181bn, or 38% of overall CIT collections. The sum represents CIT payments by the foreign subsidiaries of resident / Nigerian companies.
Local CIT collections amounted to NGN292bn. In terms of sectoral composition, the local CIT collections mirror VAT collections. The manufacturing sector generated the highest amount of CIT from local sources at NGN64bn, or 22% of local collections.
The CIT data does not provide a granular breakdown by manufacturing segment. However, from historical data, we see that foods, beverages, and tobacco, the largest segment of manufacturing by economic activity, is typically one of the top segments for CIT collections.
The next two largest sectors for CIT collections are information and communications technology and the mining and quarrying sector which accounted for c. 20% and 12% of local CIT collections respectively.
At the risk of sounding repetitive, we reiterate the fact that despite the rise in collections, Nigeria’s tax collection-to-GDP ratio is still abysmally low with a total tax (oil and non-oil)-to-GDP ratio of c. 5.9% in FY ’20. The ratio for an oil-producing country should be about 15- 20%.
Over the years, the federal government has been generous with its tax waivers and concessions. According to the World Bank, such concessions cost the country roughly NGN1.1trn in tax income in 2019.
A more conservative approach to giving tax breaks like the pioneer tax status, especially to companies in mature industries, would greatly assist in bringing in more revenue to the tax coffers.
