Business activities in Nigeria’s electricity and gas sector contributed N9.5 billion to Nigeria’s value-added tax basket in the first nine months of 2022, according to the latest data published by the National Bureau of Statistics (NBS).
VAT is a function of value creation in any sector of the economy. An increasing VAT return means that the sector is expanding and creating more taxable value.
According to the state-statistical agency, the total sum generated through VAT from electricity, gas, steam, and air conditioning supply stood at N1.8 billion in Q1 2022, N3.9 billion in Q2 2022 and N3.7 billion in Q3 2022 respectively.
“A significant percentage of the energy generated in Nigeria today comes from gas fired power plants whose key stock-in-trade i.e. natural gas, is liable to VAT,” said KPMG, a multinational professional services network.
KMPG noted that VAT should not be an extra burden for the industry as all players are able to transfer that cost to the final consumer (transmission/ wheeling charges do not qualify for input VAT recovery).
“However, this is not the case. Poor collection rate is still a significant issue for Discos that may struggle to recover any VAT paid. This will also have a knock-on effect on the value chain as Discos that have struggled to pay for power taken may not be able to pay any VAT charged by the Gencos; thus limiting the Genco’s ability to recover the VAT paid to gas suppliers. This ultimately worsens the liquidity issue,” KPMG explained in a note.
The total payment received by the GenCos from the Nigeria Bulk Electricity Trading Plc (NBET) in the first half of this year was 54.64 percent of the amount due to them, compared to the 95.02 percent they got in the same period last year, NBET data show.
Read also: Events that shaped Nigeria’s electricity sector in 2022
In August, the Association of National Electricity Distributors, the umbrella body for the Discos, stressed the need to address the lack of a cost-reflective and sustainable tariff, inadequate gas supply, inconsistent regulatory and policy determinations, transmission grid constraints, non-payment of MDA electricity debt, electricity theft, and lack of respect for sanctity of contract in the sector.
The Nigerian Electricity Regulatory Commission (NERC) said in its latest quarterly report that low remittances had continued to adversely affect the ability of NBET to honour its financial obligations to GenCos while service providers struggle with the paucity of funds.
According to the regulator, there is an urgent need for all the DisCos to implement new strategies to increase their collections in order to improve their remittance performance.
“If this is not done, they will be saddled with too much market shortfall debts which will compromise their equity position,” NERC said. “To enforce market discipline and compliance with payment obligations, the commission has ordered NBET to exercise her contractual right on the payment security cover provided by DisCos in accordance with the terms of its vesting contract with DisCos.”
