Company Income Tax (CIT) revenue recorded the most in seven years, a sign that Nigeria’s economy may have started recovering from the adverse impact of the COVID-19 pandemic, a BusinessDay analysis has shown.
According to the latest CIT report released by the National Bureau of Statistics (NBS), its revenue rose by 20 percent to N1.69 trillion from N1.41 trillion in the previous year. The CIT for 2021 is almost at par with N1.63 trillion recorded in 2019.
Analysts have said the increase depicts an improvement in economic and business activities in the country but it is still below its potential.
“CIT now reaching record levels is an indication that businesses have recovered from the adverse impact of the pandemic and those activities in the business and economic environment has significantly normalised,” Damilola Adewale, a Lagos-based economic analyst
Similarly, analysts at FBNQuest Capital Research noted in their daily report that the increase in the tax take is commendable. However, it is still abysmally low even when viewed from an emerging market context.
“The International Monetary Fund (IMF) recently noted that Nigeria’s consolidated government revenue-to-GDP ratio at 7.5 percent is one of the lowest in the world. The story is worse if we narrow down on non-oil revenue-to GDP which is roughly around 4.3 percent,” the report stated.
It further adds that some new revenue provisions in the Finance Act 2021, such as capital gains on the sale of shares worth more than N100 million, excise levies on non-alcoholic sweetened beverages, and e-commerce taxes, are expected to enhance non-oil revenue.
“However, we believe the Federal Government’s non-oil revenue projection of N7.1trillion in the 2022 budget is quite a stretch.”
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CIT which is also known as corporate tax is a levy government imposes on the income of a company.
The CIT rate is hinged on zero percent for companies with gross turnover of N25 million or less, 20 percent for companies with gross turnover greater than N25 million and less than N100 million, and 30 percent for large companies above N100 million.
Examples of some companies who recorded an upbeat in its 2021 financial performance as against 2020 are Nigeria Breweries Plc which saw a 71.8 percent increase in net profit to N12.93 billion and Presco plc profit grew to N18.8 billion in 2021 from N5.2 billion in the previous year.
Additionally, Unilever made a profit of N3.48 billion in 2021 compared to a loss of N3.96 billion recorded in 2020 and MTN Nigeria’s profit also increased by 32 percent year-on-year.
Commenting on the factors that contributed to the CIT increase, Taiwo Oyedele, a West Africa tax leader at PwC Nigeria, said credit should go to the Federal Inland Revenue Service (FIRS), the sole collector of government revenues in Nigeria, as they have intensified efforts to improve tax collection in the country.
“They have tried to build more capacity by training their staff and issue technology more. We have also seen the amendment of the Finance Act since 2019 and the government has rolled back some incentives or reforms,” Oyedele said.
FBNQuest Capital Research analysis of the NBS report shows that the total sum represents the federation’s gross CIT receipts, the majority of which goes to the federal government.
“Domestic CIT collections totalled N259billion or 74 percent of gross receipts. In terms of sectoral composition, the information and communication sector was the greatest source of domestic CIT revenues in Q4 ’21, accounting for N51 million, or almost 20 percent of domestic collections and 15 percent of the total CIT revenue generated,” the report states.
The next three largest sources of CIT collections are manufacturing, financial services, and mining which accounted for 17 percent, 12 percent, and 11 percent of domestic CIT collections respectively.