…drops 70% in Q1
Tax payments from manufacturers in Nigeria dropped to the lowest in three years in the first quarter of 2024 largely due to the tough operating environment which impacted their financial performance.
According to the latest Company Income Tax (CIT) report by the National Bureau of Statistics, the tax revenue from both local and foreign manufacturing firms in Africa’s most populous nation fell by 70.4 per cent to N43.2 billion in Q1 from N145.1 billion in the same period of last year.
It also declined year-on-year by 31.4 per cent from N62.9 billion.
Within a year, some of the country’s biggest manufacturers incurred big losses as their borrowing costs swelled on the back of rising interest rates and a further devaluation of the naira.
“Manufacturers are not finding it easy with the high cost of production,” Abiodun Kayode-Alli, tax senior manager at PwC, said.
He said the state of the economy has impacted the amount they contribute to the government in terms of taxes. “Manufacturers pay a lot of taxes.”
He added that apart from the tough business environment, collection in Q1 is usually not much because most companies have till June 30 to complete filling and payments. “S0 they are properly waiting till that time to make payments.”
CIT, which is also known as corporate tax, is a levy the government imposes on the income of a company. The rate is hinged on zero per cent for companies with gross turnover of N25 million or less, 20 per cent for companies with gross turnover greater than N25 million and less than N100 million, and 30 per cent for large companies above N100 million.
A breakdown of the NBS report revealed that out of 21 sectors, manufacturing activities which used to contribute the most tax revenue recorded the lowest growth rate. This affected the aggregate CIT which fell by 12.9 percent to N984.61 billion in Q1 from N1.13 trillion in the previous quarter.
Last month, the Federal Inland Revenue Service disclosed that the service generated a total of N3.94 trillion in tax revenue in Q1. The performance, however, fell short of its quarterly revenue target of N4.8 trillion.
“The CIT is mostly paid by the major players like the multinationals and conglomerates. But many of them suffered very serious losses from the foreign exchange reform,” Muda Yusuf, chief officer of the Centre for the Promotion of Private Enterprise (CPPE), said.
He added that the economy has not been favourable to most of them who contribute a lot to tax revenue especially those in production.
BusinessDay reported earlier that seven out of 13 listed consumer goods firms posted a combined loss of N388.6 billion in Q1.
They are International Breweries Plc, Cadbury Nigeria Plc, Nigerian Breweries Plc, Nestlé Nigeria Plc, Dangote Sugar Refinery Plc, Champion Breweries Plc, and Guinness Nigeria Plc.
Of the six remaining companies, three which include BUA Cement, Lafarge Africa Plc and Nascon Allied Industries Plc reported a decline in their earnings by 37.6 per cent, 65.2 per cent, and 24.9 per cent respectively.
The remaining three posted an increase in profit. They include BUA Foods Plc, Unilever Nigeria Plc, and Dangote Cement Plc which posted a combined profit of N171.9 billion, up from N152.6 billion.
“A lot of consumer firms had higher finance costs because of FX losses and higher interest rates,” Ayorinde Akinloye, a Lagos-based investor relations analyst, said.
“Despite some of them having good operating performance, their profit declined while others recorded huge losses,” he said.
The CBN in May raised its monetary policy rate for the third straight time by 150 basis points to 26.25 per cent in a bid to fight inflation and defend the ailing naira. That takes the total hikes since February to a combined 750 basis points.
Apart from the MPR hike, the liberalisation of the foreign exchange regime in June made the naira suffer a nearly 30 per cent devaluation this year.
The official exchange rate increased from N463.38/$ on June 9, 2023, to N1, 473.7/$ as of June 11, 2024. At the parallel market, the naira depreciated to N 1,500/$ from 762/$.
Nigeria’s harsh business environment has also forced more multinationals to exit the country. Within 10 months, six of them have left the country. They are Kimberley-Clark, Procter & Gamble (P&G), GlaxoSmithKline Consumer (GSK) Nigeria, Equinor, Sanofi and Bolt Food.
“Many companies that seem to be alive today are sick and most of them are not making profits. Many companies will still shut down because they cannot plan. About 10 million businesses have closed shop,” Femi Egbesola, national president of the Association of Small Business Owners of Nigeria, said.
