07, 2020 / 09:29 AM / by FBNQuest Research / Header Image
The weakest point in the Nigeria macro story is the paucity of government revenue collection. Total gross revenue (ie before distribution to the three tiers of government) amounted to N9.55trn in 2018 and N10.26trn last year.
At 7.5% and 7.1% of GDP respectively, Nigeria is running about ten percentage points short of its peers, and probably more when we make parallels with major community exporters. The FGN cannot be faulted for setting aggressive targets for collection: it is just that the capacity of the collection agencies is not always up to the challenge.
We should contain our expectations of the rise in the standard rate of VAT from 5.00% to 7.50% with effect from February. The FGN added a good number of food items to the list of exemptions from the tax and raised the threshold for company registration to annual turnover of N25bn.
There has been more success in boosting the take from companies' income tax (CIT). Gross collection in the 12 months to February of N1.64trn was 12.3% ahead of the year-earlier period and 36.7% higher than the 12 months to February 2018. A. small number of companies account for the greater part of the take. The priority is surely to increase coverage through mobile money and other means in a country where SMEs contribute 58% of GDP.
Statistics from the Federal Inland Revenue Service (FIRS) also point to progress. In Q1 2020 it met 54.4% of its pro rata non-oil revenue target, and in Q2 70.8%. The FIRS collects most non-oil taxes as well as the petroleum profits tax.
Federally collected non-oil revenue (gross; N bn)
Sources: CBN; FBNQuest Capital Research
Other revenue shown in the table includes education tax receipts, contributions to the information technology development fund, and levies on cement, steel and sugar. In sum, they generated a little more than FGN independent revenue in the period under review.