Experts Hail FIRS as VAT Hits N1.56trn
The Federal Inland Revenue Service(FIRS) has received the commendation of analysts for collecting N1.56trn in its Value Added Tax collections in the second quarter of the year.
A report released by the Nigeria Bureau of Statistics on Sunday showed that this represented a 9.11 per cent increase from the N1.43tn recorded in the first quarter of the year.
It indicated that local VAT payments contributed N792.58bn, while foreign VAT payments accounted for N395.74bn and VAT from imports amounted to N372.95bn during the period under review.
“On the aggregate, Value Added Tax for Q2 2024 was reported at N1.56tn, showing a growth rate of 9.11 per cent on a quarter-on-quarter basis from N1.43tn in Q1 2024. Local payments recorded were N792.58bn, Foreign VAT payments were N395.74bn, while import VAT contributed N372.95bn in Q2 2024,” the report stated.
Commenting on the VAT growth, the Head of Research, FMDQ Group Plc, Vincent Nwani, praised the FIRS’ ability to raise more revenue via VAT.
He, however, raised concerns that the country was still lagging globally in revenue generated through VAT.
“The Federal Government has raised more tax revenue. The government improved the revenue collection and it is commendable. However, it will not improve Nigeria’s international trade. And it will not solve our infrastructural need and the minimum wage,” Nwani stated.
Also, in an interview, Vice Chairman of Highcap Securities Ltd, David Adonri, said it was a welcome development that the Federal Government could ramp up revenue.
He, however, maintained that the increase in import VAT underscored the country’s dependence on foreign goods, which might have mixed effects on the domestic economy.
According to Adonri, although higher VAT revenue could support government finances, it may also contribute to inflation and reduce consumer purchasing power.
“It will not affect manufacturers, but it might be an increase in logistics and an increase in the domestic raw materials and the effort to get the materials has increased because bandits and policemen are taking their shares.
“It is, however, necessary to state that the VAT has always been there and it will not affect the manufacturing companies,” he explained.
An economist at Ajayi Crowther University in Oyo, Dr Segun Ogundare, mentioned that the increase in VAT collections indicated a growth in economic activity, but it may have adverse effects on consumer spending.
He added that higher VAT rates might strain household budgets, leading to decreased consumer demand and potentially slowing down economic growth.
“An increase in VAT typically leads to higher prices for goods and services, which can elevate living costs and reduce discretionary spending. This could lead to consumer resistance, where people cut back on non-essential purchases.
“Rising VAT collections should not be taken at face value, as they often accompany price increases for commodities. Higher taxes can strain consumer budgets, leading to decreased spending and potentially forcing companies to either reduce prices or face closures,” he said.
In terms of sectoral performance, human health and social work activities recorded the highest growth rate with 98.44 per cent, followed by agriculture, forestry, and fishing at 70.26 per cent, and water supply, sewerage, waste management, and remediation activities at 59.75 per cent.
On the other hand, activities of households as employers and undifferentiated goods- and services-producing activities of households for their use posted the steepest decline, with a growth rate of -46.84 per cent.
Real estate activities also saw a significant decline at -42.59 per cent.
Manufacturing took the lead in sectoral contributions with an 11.78 per cent share, followed by information and communication with 9.02 per cent, and mining and quarrying at 8.79 per cent.
“On the other hand, activities of households as employers, undifferentiated goods- and services-producing activities of households for own use, had the lowest growth rate with -46.84 per cent, followed by Real estate activities with –42.59 per cent. In terms of sectoral contributions, the top three largest shares in Q2 2024 were manufacturing with 11.78 per cent; information and communication with 9.02 per cent; and Mining and quarrying with 8.79 per cent,” it added
Meanwhile, activities of households as employers recorded the least contribution with zero per cent, while activities of extraterritorial organisations and bodies contributed 0.01 per cent.
Water supply, sewerage, waste management, and remediation activities, along with real estate services, each contributed 0.04 per cent.
On a year-on-year basis, VAT collections in Q2 2024 surged by 99.82 per cent compared to the N780.49bn collected in the second quarter of 2023.
Economic Confidential reports that former Vice President Atiku Abubakar had slammed the Federal Government’s plans to increase the Value Added Tax.
Atiku said that the policy would deepen the domestic cost-of-living crisis and exacerbate Nigeria’s already fragile economic growth.
