A Large Blow to FGN Revenue from the Virus

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Thursday, November 12, 2020 / 09:54 AM / By FBNQuest Research / Header Image Credit: TheCable

 

The CBN's monthly reports show the same decline in government revenue collection due to the virus that we have seen in other economies. Total non-oil revenue collection (gross) in August was 15.1% down y/y at N366bn and companies' income tax (CIT) 30.6% lower at N136bn. Household spending has taken a further hit from Covid-19. The bright spot is VAT collection, which rose by 58.3% y/y to N133bn. The increase in the standard rate from February is responsible, along with the expansion in the tax net, we assume, as a result of the growth in digital financial services.

                                                                                    

The monthlies have revised the benchmarks for collection downwards in line, we think, with the changes to the FGN's 2020 budget. The monthly benchmark for total non-oil tax has been trimmed from N577bn to N551bn. That for customs and excise duties has been heavily cut from N115bn to N84bn, reflecting largely the decline in imports due to reduced fx availability.

 

The adjusted benchmark has been attained twice in the past year for CIT, which peaks in July through to September, but not at all for the other taxes, let alone total collection.

 

Non-oil tax collection in 2019 was the equivalent of 3.3% of GDP, and for total collection the figure was just 7.1%. These are pitifully low ratios: it is a long-term challenge to get it close to a respectable 20%.

 

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Other revenue in the chart includes education tax receipts, contributions to the technology development fund and customs special levies.

 

 

We saw in the local media this week that the Federal Inland Revenue Service has a target to collect N277bn from education tax in 2021 and that a leading beneficiary in tertiary education called on the service to raise N500bn. This would compare with N343bn for all other revenue collected in the past year.

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