September 13, 2024/CSL Research

According to the National Bureau of Statistics (NBS), aggregate Value Added Tax (VAT) for Q2 2024 was reported at ₦1.56 trillion, a growth of 9.11% on a quarter-on-quarter basis from ₦1.43 trillion in Q1 2024. Of this, local VAT payments recorded in the period under review were ₦792.58 billion, foreign VAT payments were ₦395.74 billion, while import VAT contributed ₦372.95 billion. VAT is a significant contributor to government revenue in Nigeria.

In recent years, VAT has accounted for around 5-8% of the total federal government revenue. VAT is particularly important for state governments, as 85% of the VAT revenue is distributed to them, making it a key source of subnational income. The remaining 15% goes to the federal government. This structure emphasizes VAT’s role in boosting not only national but also regional economic stability.

Based on sectoral classifications, the top three largest contributors to the total VAT collected in Q2 2024 (just as recorded in the prior quarter) were manufacturing with 11.78% (₦183.89 billion); information and communication with 9.02% (onti₦140.80 billion); and mining and quarrying with 8.79% (₦137.18 billion). On a year-on-year basis, VAT collections in Q2 2024 increased by 99.82% from Q2 2023 with highest y/y jumps seen on the import (+194.38%) and foreign (+177.46%) VAT payment components respectively. Within the local VAT payment segment, mining and quarrying (+155.04%) recorded the highest y/y growth. The recent VAT numbers reflect in part the effect of current high cost of living in the country relative to prior quarters and the continuous currency depreciation.

The Presidential Fiscal Policy and Tax Reforms Committee is currently deliberating on a proposal to increase VAT on non-essential goods from 7.5% to 10%. This measure is aimed at offsetting the impact of reducing VAT on essential goods and services—such as food, healthcare, and education—to zero. Additionally, rent, transportation, and small businesses would be exempt from VAT under the new policy. If implemented, the reform is expected to alleviate the tax burden on the general population while still enhancing government revenue.

Furthermore, the government would consolidate consumption taxes, charging only VAT where applicable. Exports of services and intellectual property would also be subject to zero percent VAT, promoting export growth.

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