September 13, 2022/CSL Research

Based on the data published by the National Bureau of Statistics (NBS), the gross Company Income Tax (CIT) generated in Q2 2022 amounted to N714.4bn, a growth of 29.5% q/q and 51.3% y/y compared to N551.5bn in Q1 2022 and N472.1bn in Q2 2021. Notably, the Q1 2022 amount of N551.5bn was revised from N532.5bn initially.

The CIT collection for Q2 2022 is the highest amount of CIT collected since 2015. The closest to this was in Q2 2015 when N621.5bn was generated. However, the difference between both periods (Q2 2022 & Q2 2015) is the driver of the amount collected. For Q2 2022, Local CIT payment contributed N634.0bn (88.7%) to the total CIT revenue while foreign CIT payments contributed N427.3bn (68.8%) to the total CIT revenue of Q2 2015.

Save for Other Payments that were absent in Q2 2022, the y/y growth in CIT collections in Q2 2022 was broad-based as revenue from both Local and Foreign sources grew, with the latter (+55.8% y/y) recording higher growth than the former (+51.8% y/y). In terms of the contribution to CIT revenue in Q2 2022, CIT from foreign sources contributed N80.4bn (11.3%), leaving CIT revenue from local companies to plug the balance (N634.0bn; 88.7%).

For local CIT payments, based on the classifications made available by NBS, Manufacturing (27.6%), Information and Communication (24.6%), and Financial & Insurance activities (15.0%) contributed the most to collections in Q2 2022.

The higher tax payments from these sectors lend credence to the resilient performance seen from these companies under coverage. Particularly, the contribution from the ICT sector did not come as a surprise given the impressive earnings performance of the telecom players which obviously resulted in a higher tax payment.

The strong CIT revenue momentum which started in Q1 2022 and extended into Q2 2022 is commendable in our view and a reminder that CIT collection is a significant part of non-oil revenue for the government.

This can be improved on if efforts are harnessed to resolve some of the agelong issues affecting the business environment and dragging profitability. Again, similar to the narrative in 2021, we believe the non-oil revenue in 2022 arising from both CIT and VAT collections will likely outperform 2022 budget estimates, which provides some respite especially at a time when high subsidy payments and low oil production has been keeping revenue low. Even as of April 2022, revenue from CIT collections achieved 98.6% (N298.8bn) of its prorated target.

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