September 08, 2020 / 10:37 AM / By FBNQuest Research / Header Image Credit: The Numbershift
In advanced economies, big data such as VAT collections allow analysts to give an early heads-up on the direction of an economy. The numbers on collections, for example, are available well ahead of the national accounts. Big data is so named because of the scale of the information, which has great microeconomic potential. In Nigeria, in contrast, large segments of the economy are outside the tax net but the data, drawn by the NBS from the Federal Inland Revenue Service (FIRS), have its uses. The breakdown by paying sector in the chart covers just locally collected VAT.
Manufacturing is comfortably the largest contributor when we recall that the category in the chart excludes breweries, textiles, chemicals, printing, petroleum refining and conglomerates.
In advanced economies there are large receipts from hotels and catering, which accounted for just 1.4% of the total in Nigeria last year. Professional services generated the second largest share of 19.2%, which probably reflects their high profile and scale of fees, and their extensive work for the FGN.
We are surprised that the take from state government ministries and parastatals (7.2%) was higher than that of their federal counterparts (6.0%).
Total local collections increased by 26.0% y/y to N173bn in Q1 2020, and so well ahead of nominal GDP growth of 12.0%. The rise in the standard rate of VAT to 7.50% from the start of February would have provided a boost, subject to the new exemptions granted by the FGN. We hope that, as with companies' income tax, the FIRS has been able to broaden its coverage too.
Locally collected VAT by sector 2019 (% shares)
Sources: National Bureau of Statistics (NBS); FBNQuest Capital Research
Separately, we have noted a steady rise in the monthly payout from the VAT Pool (local and foreign collections) by the Federation Account Allocation Committee to N132bn in June (Good Morning Nigeria, 28 August 2020).
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