May 31, 2022/CSL Research

Based on the data published by the National Bureau of Statistics (NBS), the gross Company Income Tax (CIT) collected in Q1 2022 amounted to N532.5bn, a significant growth of 53.1% q/q and 35.6% y/y compared to N347.81bn in Q4 2021 and N392.7bn in Q1 2021. The CIT collection for Q1 2022 is the highest amount of CIT collected since Q2 2015, when N621.5bnwas collected. Both periods (Q1 2022 & Q2 2015) were supported by a significant increase in foreign CIT payments. Specifically, Foreign CIT payments contributed N323.4bn (60.7%) and N427.3bn (68.8%) to the total CIT revenue of Q1 2022 and Q2 2015, respectively. We believe the impact of currency depreciation on the naira equivalent may have contributed to the increased foreign CIT payments.

The y/y growth in CIT collections in Q1 2022 was broad-based as revenue from both Local and Foreign sources grew, with the latter (+75.3% y/y) increasing more than the former (+37.3%y/y). In terms of the contribution to CIT revenue in Q1 2022, CIT from foreign sources contributed N323.4bn (61%), leaving CIT revenue from local companies to plug the balance (N209.1bn; 39%). For local CIT payments, based on the classifications madeavailable by NBS, Manufacturing (21.3%), Information and Communication (14.0%), and Financial & Insurance activities (12.2%) contributed the most to collections in Q1 2022. The contribution from the ICT sector does not come as a surprise as the impressive performance from telecom players must have resulted in higher tax payment. The gross CIT revenue (N532.5bn) generated in Q1 2022 is a good start to the year, commendable in our view and a reminder that CIT collection is a major part of non-oil
revenue for the government, which can grow if efforts are harnessed to resolve some of the agelong issues affecting the business environment and dragging profitability.

Similarly, while the Q1 2022 VAT data is unavailable as of writing, VAT revenue is certainly on course for an impressive start to the year, benefitting from the impact of the inflationary pressures on prices of goods and services since VAT is deducted by applying the VAT rate on the value of transactions. The VAT amount will also benefit from the continued economic recovery as improved profitability will spur growth in CIT collections.