The petrochemicals and petroleum refineries sector’s contribution to Nigeria’s value-added tax basket increased by 65 percent in the first quarter of 2021, according to the latest data published by the National Bureau of Statistics (NBS).
This segment of Nigeria’s oil and gas industry contributed N2.1 billion in Q1 2021, representing a 65percent increase compared to N1.3 billion recorded in the corresponding period last year.
VAT is a function of value creation in any sector of the economy. An increasing VAT returns means that the sector is expanding and creating more taxable value.
The N2.1 billion contributed in the first quarter of 2021 is also the sector’s highest remittances of VAT in the last five quarters. For instance, it is higher than N918 million contributed in Q2 2020, N1.6billion contributed in Q3 2020, and N1.9 billion contributed in Q4 2020.
The NBS data also revealed that the oil and gas sector comprising the upstream, midstream, and downstream sub-sectors generated N23.84billion in VAT for the Federal Government in the first quarter of 2021.
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Analysts say the surge was due to the increase in the VAT rate to 7.5 percent from 5 percent, an improvement in consumption and better enforcement by the Federal Inland Revenue Service (FIRS).
“It is not surprising as it is a function of the increase in VAT rates. The economy is on a better footing now compared to where we were during the COVID crises,” Omotola Abimbola, a macro and fixed-income analyst at Lagos-based Chapel Hill Denham said.
Oil marketing which refers to the sale and distribution of petroleum products such as Premium Motor Spirit, Automotive Gas Oil and Dual Purpose Kerosene generated N3.02bn in VAT for Q1 2021.
This represented an increase of 38.30 per cent from Q4 2020’s N2.18billion and a Year on Year increase of 26.53 per cent from Q1 2020.
The gas downstream sector saw a 1.7 percent decrease in its YoY growth rate as it reduced from N1.29bn in Q1 2020 to N1.27bn in Q1 2021.
Nigeria has several upcoming oil and gas projects including the 650,000 barrel per day Dangote refinery in Lagos which is expected to start operations in 2022 and to become the largest oil refinery in the African continent.
As many as 100 oil and gas projects are set to start in Nigeria by 2025, accounting for 23 percent of all energy projects in Africa within the next five years, data and analytics company GlobalData said in a new report.
In the petrochemical sector, the most prominent project is the Brass Methanol Plant, owned by Brass Fertiliser & Petrochemical Company. With a capacity of 1.70 million tonnes per annum (mtpa) the new build plant has already received approval and is expected to start operations by 2025.
Also, petrochemical projects will hold the highest share of new startup projects in Nigeria through 2025, with 28 projects, followed by 25 expected upstream oil and gas projects, 24 refinery projects, and 23 midstream projects, according to GlobalData estimates.
“The increase in VAT collection simply means there is more funds in the purse of the government at all levels to expand. This is expected to cushion the effect of low FAAC allocations to a lesser extent,” Moses Ojo, a Lagos-based Economic Analyst said.
