Manufacturing’s VAT dominance strengthens case for targeted industrial support

…As VAT dominance boosts case for targeted industrial support

Nigeria’s manufacturing sector reinforced its position as a major contributor to government revenue in the first quarter of 2026, generating the highest value-added tax (VAT) receipts of N329.5 billion, even as industry stakeholders renewed calls for stronger government support to address rising production costs and improve competitiveness.

The sectoral distribution of Value Added Tax report released by the National Bureau of Statistics (NBS) showed that manufacturing, information and communication, and mining and quarrying were the three largest contributors to the N2.42 trillion VAT collected during the quarter.

According to the report, the manufacturing sector’s VAT contribution rose from N286.9 billion recorded in the corresponding period to N329.5 billion in Q1 2026, representing a 14.86% increase.

While the figures underscore the sector’s significant contribution to public finances, industry leaders argue that manufacturers continue to shoulder enormous structural costs that undermine their competitiveness against imported goods.

They say the latest VAT figures highlight the manufacturing sector’s growing fiscal importance despite persistent structural constraints, reinforcing calls for targeted industrial policies that reduce production costs, improve infrastructure and enhance the competitiveness of locally manufactured goods.

Adesoji Adesugba, Founder and Chief Executive Officer of Aurelius Development Advisory Consult and First Deputy President of the Abuja Chamber of Commerce and Industry (ACCI), said the narrative that manufacturers are burdened only by taxes overlooks the broader structural challenges confronting industrial production in Nigeria.

According to him, the real challenge is the overall cost of production, which has made locally manufactured goods more expensive than imported alternatives from countries such as China, India, Vietnam and Turkey.

“There is a comfortable but incomplete story we tell ourselves about why Nigerian-made goods keep losing to imports, that local manufacturers are simply overtaxed. The tax burden is real, but it is only one line in a much longer invoice.

Read also: Nigeria’s biggest palm oil producer plans $100m investment in Ogun

“Nigeria repeatedly ranks among the more expensive places to manufacture, despite having some of the cheapest labour in the world.

Consider the real invoice a Nigerian manufacturer pays. He does not simply settle Companies Income Tax. The cost stack is layered, and most of it has nothing to do with the formal tax code.

“A typical producer absorbs Companies Income Tax, the new four per cent Development Levy that now consolidates the old education, technology and related charges, VAT compliance obligations, import duties on inputs, withholding taxes, a thicket of state and local government levies, and an array of regulatory fees and permits. That is merely the visible half,” he said.

Adesugba explained that beyond taxes, manufacturers grapple with high electricity costs, expensive diesel and gas, poor infrastructure, logistics bottlenecks, multiple regulatory charges and prohibitively high lending rates.

Citing data from the Manufacturers Association of Nigeria (MAN), he noted that manufacturers spent about N1.34 trillion on self-generated electricity in 2025, while energy now accounts for about 40% of factory operating costs.

“The invisible half is heavier still, electricity that must usually be self generated, diesel and gas at prices that have more than doubled, logistics costs that surged after the removal of the fuel subsidy, and the punishing cost of money itself. It is this second half, infrastructure the state has failed to provide, financed at interest rates among the highest on earth, that quietly destroys Nigerian competitiveness,” he added

He added that lending rates above 30 per cent have significantly constrained investment, forcing many manufacturers to reduce production capacity and cut jobs.

According to him, these structural disadvantages have created a situation where imported products often arrive in Nigerian markets at lower prices than goods produced locally.

“The importer buys from subsidised and efficiently financed factories abroad and still lands products cheaper than a Nigerian manufacturer can produce them. At that point, imports are no longer simply competing, they are displacing local production,” he said.

Adesugba argued that while the 2025 Tax Reform Acts, which consolidate several taxes and introduce measures such as expanded VAT deductibility on fixed assets, are steps in the right direction, tax reforms alone cannot restore industrial competitiveness without addressing power supply, financing costs and logistics.

He called for affordable industrial electricity, single-digit financing for manufacturers, harmonisation of multiple taxes and expansion of special economic zones to reduce production costs.

Speaking on the NBS figures, Muda Yusuf, the Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), said manufacturing naturally accounts for the largest share of VAT because it is a consumer-facing sector that produces goods purchased daily by millions of Nigerians.

He explained that products such as food, beverages, cement and other fast-moving consumer goods attract VAT at the point of sale, unlike several activities in sectors such as oil and gas where VAT exemptions apply.

“If you look at what they produce, food, beverages, cement and other consumer products, VAT is paid on virtually all of them. Because manufacturing serves such a large market, especially with Nigeria’s population, it naturally generates substantial VAT,” Yusuf said.

He stressed that manufacturers’ substantial contribution to government revenue strengthens the argument for policies that improve their operating environment.

“If the government is taking so much from manufacturers, it should also support them to do even more. If you improve their operating environment, their production will increase, their sales will grow and the government will ultimately collect even more VAT,” he said.

Yusuf described the argument for directing more infrastructure and policy support towards manufacturing as “logical,” noting that easing production constraints would benefit both industry and government revenues.

On his part, Segun Ajayi-Kadir, Director-General of the Manufacturers Association of Nigeria (MAN), urged the Federal Government to strengthen institutions that provide financing to manufacturers, particularly the Bank of Industry (BOI).

Speaking recently at the presentation of BOI’s Annual Development Impact Report, Ajayi-Kadir said manufacturing remains a strategic sector, contributing about nine to 10% of Nigeria’s Gross Domestic Product (GDP).

He noted that BOI’s interventions already account for about two percentage points of manufacturing value addition and called for increased capitalisation of the development finance institution to deepen its impact.

“Manufacturing is a strategic choice for any nation. If two per cent of manufacturing value addition is traceable to BOI’s activities, then the government should scale up its support and strengthen the institution’s capacity to do more,” he said.

Ajayi-Kadir expressed optimism that deeper collaboration between MAN and BOI would expand access to finance, strengthen industrial production and increase the sector’s contribution to economic growth.