FG’s non-oil revenues threatened by plunge in corporate taxes

Nigeria’s ongoing economic contraction is showing up in the performance of its largest listed firms, as profitability and company income tax liabilities plunge.

BusinessDay analysed third Quarter (Q3), 2016 results released by 91 major companies listed on the Nigerian Stock Exchange (NSE) to determine if there are any signals they are flashing about the state of the Nigerian economy.

The analysis showed that combined after tax profits (for all 91 firms) were down 24 percent to N477 billion, from N630.9 billion in 2015 period.

Similarly, income tax expense for the firms fell by 4.88  percent for the Q3, 2016 period to N109.3 billion from N115 billion, in 2015.

This trend makes it extremely unlikely that the Federal Government (FGN) will achieve its goal of boosting non oil revenues, especially taxes this year.

Company Income Tax (CIT) is the largest source of non-oil revenue for the FGN.

In the 2016 budget proposal, the FGN planned for 60 percent of its non-oil revenue to come from CIT.

“Customs revenue – which accounts for c. 20% of the FGN’s targeted non-oil revenue – amounted to NGN163bn at 1H16, which is only two-thirds of the pro rata target. Value Added Tax (VAT) – which accounts for c. 15% of planned non-oil revenue – came to NGN162bn, which is half of the pro rata target. The poor showing from CIT, VAT and customs revenues, in our view, reflects an economy in recession,” Yvonne Mhango, Africa chief economist at Renaissance Capital said.

Africa’s largest economy has been slowing as oil prices fell by about 50 percent between mid 2014 and today.

Latest figures from the National Bureau of Statistics (NBS) show that gross domestic product (GDP) contracted 2.2 percent in Q3 (three months through September) from a year earlier, after shrinking 2.1 percent in the second quarter and 0.4 percent in the first quarter.

Digging deeper into the firms Q3 results showed that the number of firms recording losses increased by 17 percent between 2015 and 2016 and they came from across various sectors.

Consumer goods firm Glaxo Smithkline and Cadbury, indigenous oil producer Seplat and Oando, Insurance firm, Mutual Benefits, beer makers such as International Breweries , cement manufacturer Ashaka, construction giant Julius Berger, and conglomerate, Transcorp all recorded losses.

All the firms listed above made profits in the 2015 period, except Oando.

Zenith Bank’s tax liability of N21.2 billion was the biggest in the nine-month period, followed by Guaranty Trust Bank with N20.9 billion, Dangote Cement N15.1 billion, Access Bank’s N14.98 billion and FBNH N14.9 billion to round up the top 5.

The poor state of the economy showed up in the construction and cement industry, as Lafarge Africa reported a loss, while Dangote Cement and Cement Company of Northern Nigeria (CCCN) reported lower profits this 2016 period than in the earlier period.

Most of the banks also recorded lower profits, compared to a year ago.

The analysis also show that a few big firms are paying a large percentage of the CIT, meaning most firms are small and probably need incentives to grow larger.

Only 22 of the 91 companies had income tax expenses that exceeded the N1 billion ($3.27 million) mark in 9 months.

PATRICK ATUANYA