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Company income tax revenue hits record high in Q2, despite hurdles

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The Federal Government’s revenue from Company Income Tax (CIT) has surged to the highest on record in the second quarter of this year, new data has shown.

According to the National Bureau of Statistics (NBS) data, its revenue rose by 226.4 per cent to N1.53 trillion in q2 from N469.01 billion in the previous quarter. On a year-on-year basis, it grew by 114.28 per cent from N714 billion.

“This is the first time CIT has crossed the one trillion naira mark in a quarter. The amount collected in Q2 is higher than the total amount collected in 2015, which was N1.38trillion, 2016 (N1.02 trillion), 2017 (N1.25trillion), and 2018 (N1.41trillion) respectively,” analysts at CSL Research said in a note on Tuesday.

They attributed the significant increase in CIT to a rise in profits by companies in q2 as the naira cash crunch and the general elections constrained gains in q1.

Read also: Company tax grows by 226% to N1.5trn in Q2

Company income tax is a levy the government imposes on a company’s income. The rate is hinged on per per cent for companies with a gross turnover of N25 million or less per per cent for companies with gross turnover greater than N25 million and less than N100 million, aper center cent for large companies above N100 million.

Usually, the second quarter, which is the filing season for more than 90 percent of companies significantly contributed to the surge, Oladejo Adeyemi, a senior manager at the Commercial Practice Group at Andersen in Nigeria said.

“Most companies have a December fiscal year-end, which aligns with the government’s fiscal year. This means that q2 is the filing season (tax payment) for more than the a per cent of companies of. Tax payments are made during this time. As a result, most compliant companies would have paid their taxes in the second quarter,” he added.

Read also Company tax for Q3 2022 stood at N810.19bn — NBS

According to Adeyemi, the naira devaluation affected the revenue. “The impact of the naira devaluation has the propensity to push it up, but it’s not the only contributor to the shoot in CIT.”

A breakdown of the NBS report shows that in terms of sectoral contributions, the top most significant guest shares in the quarter were manufacturing at 25.63 percent, financial and insurance activities at 24.47 percent, and information and communication at 20.30percentt.

“Though the manufacturing sector was attributed to being the highest, FIRS may have had another way of calculating the taxes more accurately, which could have contributed to the shoot in CIT,” said Tajudeen Ibrahim, research and strategy director at Chapel Hill Denham.

The report revealed that local payments received were N1.02 trillion, while foreign payments contributed N505.9 billion in Q2.

On a quarter-on-quarter basis, water supply, sewerage, waste management, and remediation activities recorded the highest growth rate with 62per per cent, followed by accommodation and food service activities with 58per cent

However, education had the lowest growth rate with –15 per cent, followed by public administration and defence, and compulsory social security with 25 per cent

Read also The implications of global minimum tax on company tax revenue of developing countries.

It was also noted that the activities of households as employers, undifferentiated goods- and services-producing activities families for own use recorded most minors share with 0.01 per cent, followed by activities of organisations and bodies with 0.06percent; and water supply, sewerage, waste management, and remediation activities with 0.09percent.

“Based on the 2023 budget, the forecast revenue from CIT collection for the year is roughly N2 trillion,” analysts at FBN Quest said.

“Consequently, at the current run-rate, the H1’23 CIT revenue take of N1.5 trillion is comfortably tracking ahead of the pro-rata budget for the period,” they added.

Ho, however the revenue in H1 might be short-lived as analysts at CSL expect it to decline in H2.

“Though we expect revenue to decline as the profitability of businesses takes a hit amidst increasing cost pressure, we believe taxes from new sources introduced in the new finance act, such as the N10 per litre tax placed on carbonated drinks, tax on phone calls, etc. should support accretion to non-oil revenue if they kick-start before year-end,” they said.

Recently, the government announced plans to review and reduce tax waivers given to companies operating in Nigeria.

Taiwo Oyedele, the President of the Presidential Tax Reform Committee, said Nigeria’s total tax incentive to companies is about N6 trillion annually.

Read also FG hints of more tax incentives for infrastructure and capital markets.

According to him, the target is to achieve an 18 per cent tax-to-GDP ratio over the next three years while ensuring reduced taxes payable by Nigerians.

“If you look at our tax expenditure reports over the past three to four years, we are giving away around N6tn per annum on average. That is significant. What we have not been measuring enough is the benefit we are getting from that.

“But I can confirm to you that part of the mandate given to us by Mr President is to look at the incentive regime in Nigeria so that we can, based on data and evidence, design what is appropriate for us as a country,” he added.