Budget 2020: Low VAT Collections Threaten Revenue Projections
Plans by the fiscal authorities to bridge the 2020 deficit gap partly through the Value Added Tax (VAT) rate hike from 5% to 7.5% this fiscal year may be scuttled by the lingering lockdown occasioned by the COVID-19 pandemic in the country, investigations by Daily Trust have revealed.
An analysis of the Value Added Tax’ (VAT’s) collection based on the National Bureau of Statistics’ (NBS’) latest report for the first quarter of this year showed that total VAT collections rose to N338.94 billion, representing a mere 15.66% higher than the N293.04 billion recorded in Q1, 2019.
Findings by our correspondents showed that but for the upward review of the rate, total collections in the quarter would have been substantially lower than the Q1, 2019 accruals as consumers’ consumption capacity dropped on the back of payroll cuts by employers.
A further decomposition of the statistical data reflected that the collections grew by just 9.8% in the quarter under review when compared to the N308.48bn generated in Q4, 2019.
Investigations showed that the unimpressive VAT collections may not be unconnected with the COVID-19 pandemic, but analysts believe that the growing poverty and unemployment rates in the country also have implications for consumption of goods and services.
An economist, Oluwasola Emmanuel, told Daily Trust that “the fact is that it will be difficult for consumption to rise if more and more people are being pushed to the poverty level and millions of Nigerian graduates are roaming the streets for jobs that are not available.
“So, the low VAT collection is a reflection of the general state of the macro economy and unless governments do more to support businesses by making production cost cheaper and create jobs, then the dream of meeting the VAT target as the COVID-19 pandemic has crippled the economy, will become dimmer and dimmer by the day”, he added.
Daily Trust’s sectoral analysis of the collections from the report showed that professional services generated the highest amount of VAT with N38.30 billion generated at the first quarter of this year.
This was followed by other manufacturing generating N37.37 billion, commercial and trading generating N17.19 billion.
VAT collections from the banking and financial institutions rose by 29.31% to N5.43 billion in Q1, 2020 from the N4.19 billion recorded in the same period of 2019 while the breweries, bottling and beverages sector recorded 32.32% growth to N14.34 billion from the N10.84 billion generated in Q1, 2019.
Further analysis showed that out of the total amount generated in the first quarter of 2020, N172.67 billion was generated as non-import VAT locally, while N93.67 billion was generated as Non-Import VAT for foreign.