The contribution of value added tax to Nigeria’s revenue base has witnessed a consistent growth in the last six years. Given the trend, taxation on goods and services consumed by Nigerians should become a major source of revenue for government to drive growth and development in the near future, writes Bamidele Famoofo
There are indications that the drive of Nigeria’s government to increase revenue through other means than oil is beginning to yield some fruits.
For instance, the Federal Inland Revenue Service (FIRS) showed that it remitted more revenue generated from tax to the purse of the Federal Government in 2018 more than it has ever done in the history of the country.
Chairman, FIRS, Babatunde Fowler, recently announced the N5.3trillion remitted as total revenue into government’s coffers as at December 31, 2018. According to him, FIRS generated N5.3trillion in 2018, the highest in Nigeria’s history.
Before 2018, the highest revenue FIRS ever realised from taxation was N5.07trillion in 2012. After the peak performance in 2012, tax revenue declined to N3.31trillion in 2016, but moved up to N4.03trillion in 2017. The figure further improved by 32 per cent to N5.3 trillion in 2018. The target for 2019, according to FIRS, is N8.0trillion.
“While revenue from tax is growing, cost of collection of revenue is going down”, Fowler, however, lamented.
The contribution of VAT is growing as total tax revenue of government is growing. In 2018, VAT accounted for 21per cent of tax revenue collected by FIRS. In the last six years, VAT has recorded a 130 percent growth from N481.58 billion in 2013 to N5.30 trillion in 2018.
Aggregate contribution of VAT to total tax revenue in six years (2013-2018) is estimated at N4.63 trillion, according to figures supplied by the National Bureau of Statistics (NBS).
VAT in Nigeria is a consumption tax that was instated by the Value Added Tax Act of 1993. It is a federal tax, which is managed by the Federal Inland Revenue Service. VAT is charged on most goods and services provides in Nigeria and also on goods imported into Nigeria.
Businesses add VAT to the sales price of the goods or services they offer in Nigeria. They also pay VAT, just like consumers, on goods and services they consume. VAT is calculated at a flat rate of five percent of the cost of service and products and is charged on a wide array of goods and services in Nigeria.
Meanwhile, there are some exemptions. Some items that are exempted from VAT include all exports goods and other products like: Medical, Veterinary and Pharmaceutical raw materials and products. Basic food items (any unprocessed staple food item. packaged or not packaged)
Other items on the list are agricultural equipment and products, some diplomatic goods (based on federal government duty free concessions), Infant food, books, newspaper and magazines.
Breakdown of the performance of contribution of VAT to tax revenue since 2013 showed that the figures have been on the increase in the last six years till date. VAT stood at N481.58 billion (local collections only, excluding foreign collection) in 2013. But the figure increased by 2.57 per cent fromN481.58 billion in 2013 to N493.95 billion in 2014, which also represents local collections only, excluding foreign collection. VAT revenue, however, recorded an unprecedented growth of 61 per cent to N795.43 billion in 2015 from N493.95 billion in 2014.
Between 2015 and 2016, revenue dropped by 2.25 per cent from N795.43 billion in 2015 to N777.50 billion in 2016. A 25.1 per cent growth recorded in 2017 inched VAT revenue close to the one trillion mark achieved in 2018. Revenue from VAT moved to N972.35 billion in 2017, representing a 25 percent increase from N777.50 billion level achieved in 2016. The achievement in 2018 was unprecedented at N1.11 trillion representing 14.2 per cent increase from N972.35 billion recorded in 2017.
Contribution by Sector
The mining sector of the economy emerged the biggest contributor to VAT revenue in 2018 with N182.54billion, which represents an increase of 34.8 percent year-on-year (yoy). As contained in the NBS report on VAT for fourth quarter in 2018, other manufacturing sector came next to mining in terms of total contribution to VAT in full year ended December 31, 2018 with N122.90billion, representing 2.76 percent growth year on year.
The sectors in the top five categories in their contribution to VAT growth in 2018 include Professional services, N86.28billion reducing its contribution by -1.42 per cent year on year in the review financial year ended December 31, 2018. The commercial and trading sector, however, increased its quota to VAT revenue by 27.4 per cent year on year to N63.06 billion while VAT revenue from state ministries and parastatals moved up 5.05 percent to N42.95 billion in 2018 to emerge fifth largest contributor to VAT.
Sectors that featured in the top 10 ranking in contribution to VAT in 2018 are oil producing, N37.45 billion, dropping -17.02 percent compared to its performance in 2017. The breweries, bottling and beverages sector recorded a marginal growth of 0.61percent to N35.93 billion;
Federal ministries and parastatals ranked 8th on the performance list with N19.44 billion representing a 4.88 per cent decline from the figure posted in 2017, while banks and financial institutions also recorded a drop to by 10.88 per cent in 2018 to about N18.50 billion.
Other VAT contribution accounted for N12.94billion representing a growth of 32.3 per cent year on year.
Notably, agricultural and plantations recorded a growth of about 32.0 per cent in the review period suggesting that efforts of government to diversify the economy through investment in the sector is beginning to yield some desirable result. The sector contributed N2.47 billion to gross VAT revenue in the review period as it recorded a quarter to quarter (Q4, 18 vs. Q4, 17) growth of 88.72 percent in 2018.
Sectoral distribution of Value Added Tax (VAT) data in fourth quarter, 2018 reflected that the sum of N298.01billion was generated as VAT in Q4 2018 as against N273.50 billion generated in Q3 2018 and N266.73 billion in Q2 2018 representing 8.96 percent Increase quarter-on-quarter and 17.28per cent year-on-year.
Other manufacturing generated the highest amount of VAT with N28.82 billion generated and closely followed by professional services and commercial and trading both generating N24.12billion and N16.02 billion respectively while mining generated the least and closely followed by pharmaceutical, soaps & toiletries and chemical, paints and allied industries with N35.75 million, N209.33 million and N258.39 million generated respectively.
Out of the total amounted generated in Q4 2018, N138.42 billion was generated as non-Import VAT locally while N47.89 billion was generated as non-Import VAT for foreign. The balance of N111.71 billion was generated as NCS-Import VAT.