Inflation Drives Increase in Value Added Tax

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June 13, 2024/CSL Research

Value Added Tax (VAT) surged by 101.7% year-on-year to N1.43trn in Q1 2024, up from N709.59bn in Q1 2023, according to the National Bureau of Statistics (NBS). On a quarterly basis, VAT increased by 19.2% from N1.20trn in Q4 2023. The VAT rate, set at 7.5% since its increase from 5% in February 2020, is charged on all goods and services produced within or imported into the country. The persistent inflation has driven up the price levels of goods and services, contributing to the growth of VAT revenues during this period. Several factors, including rising import duties, the removal of fuel subsidies, and the depreciation of the Naira, have led to higher prices for goods and services.  

VAT from local payments contributed the highest, accounting for 46.3% (N663.18bn) of the overall VAT recorded in Q1 2024. This represents a 52.1% Y-o-Y increase from N436.10bn in Q1 2023 and a 5.3% quarter-on-quarter increase from N630bn in Q4 2023. In addition, foreign and import VAT contributed 30.5% and 23.2%, respectively, to the overall VAT recorded in Q1 2024. Year-on-year, foreign VAT increased by 188.3% to N435.73bn from N151.13bn in Q1 2023, and import VAT rose by 171.3% to N332.01bn from N122.37bn in Q1 2023. Quarter-on-quarter, foreign VAT increased by 33.6% from N326.27bn in Q4 2023, and import VAT grew by 36.1% from N244.04bn in Q4 2023. 

The manufacturing sector contributed the highest to the nation’s overall VAT, accounting for 12.4% (N177.17bn). This marks a 37.0% Y-o-Y increase from N129.32bn in Q1 2023 and an 11.5% Q-o-Q increase from N158.9bn in Q4 2023. Conversely, activities of households as employers (undifferentiated goods- and services-producing activities of households for own use) contributed the least to the nation’s VAT. This segment saw a 65.0% Y-o-Y decline to N60.12bn from N171.68bn in Q1 2023, although it increased by 44.4% Q-o-Q from N41.65bn in Q4 2023.

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