CIT Down by 12.87% in Q1 2024

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June 14, 2024/CSL Research

According to the latest Company Income Tax (CIT) report by the National Bureau of Statistics (NBS), CIT for Q1 2024 was N984.61 billion, representing a 12.87% decrease from the N1.13trillion reported in Q4 2023. However, on a year-on-year (y/y) basis, CIT collections in Q1 2024 increased by 109.93% compared to Q1 2023. The report highlighted that local payments amounted to N386.49 billion in Q1 2024, up from N300.78 billion in Q1 2023 while foreign CIT payments contributed N598.13 billion in Q1 2024, a significant increase from N168.23 billion in Q1 2023.

This y/y surge can be attributed partly to a low base, as business activities declined significantly in Q1 2023, and more substantially to the devaluation of the Naira, which boosted the value of foreign payments. According to the Federal Inland Revenue Service, CIT is a 30% tax on a company’s profits.

We attribute the q/q decline in CIT to the decline in profits by companies, as the devaluation of the Naira continues to impact the profitability of firms negatively. In terms of sectoral contribution to CIT, the top three largest shares in Q1 2024 were from Mining and quarrying with 20.94%; Financial and insurance activities with 18.73%; and Information and communication with 12.56%. The activities of households as employers (undifferentiated goods and services producing activities of households for own use) recorded the least share with 0.02%.

Businesses are grappling with escalating operational costs and high inflation rates, eroding profit margins and reducing taxable income. The devaluation in the country’s exchange rate has led to companies reporting significant FX losses, impacting profitability negatively.

The challenging business environment has prompted some multinational corporations to exit the Nigerian market, and this has affected CIT revenues negatively. Recently, Taiwo Oyedele, chairman of the presidential committee on fiscal policy and tax reforms, announced that the federal government has approved the exemption of small businesses earning N25 million and less from withholding tax in a bid to boost business activities in the country. Overall, we believe revenues from Company Income Tax (CIT) will maintain a downward trend if economic conditions do not improve.

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