Corporate tax slump dims non-oil revenue hopes

Nigeria’s projected 2023 non-oil taxes of N2.43 trillion may be under significant threat as shaky corporate tax in Africa’s largest economy makes businesses gasp for breath amid sinking companies’ income tax and rising production costs.

Data gleaned from NGX showed five major publicly listed firms, Seplat Energy Plc, MTN Nigeria Plc, Dangote Sugar Refinery Plc, Dangote Cement, and Bua Cement Plc, recorded a dip in their income tax in the first half of 2023 to N150.57 billion from N254.15 billion recorded in the same period of 2022.

These five companies are called large cap and dictate market trading direction through positive or negative performance with a total capitalisation of N15.25 trillion, representing 42 per cent of the total market capitalisation as of August 28.

“The biggest contributor to the decline in corporate tax was weakening profits in the first half of 2023 due to challenging macroeconomic environment,” Jones Kehinde, research analyst at Alpha Morgan Capital Managers Limited, said.

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The combined profit of the firms surveyed fell by 18.23 per cent to N384.95 billion in the first half of 2023 from N470.78 billion in 2022.

“Other factors included changes in tax laws, deductions, credits, and incentives provided to businesses while economic downturns, global competition, and shifts in industry trends also played a role,” Kehinde said.

Temitope Ayeni, an analyst in the consumer goods sector, said Nigerian consumer goods firms found it difficult to earn profit or pay tax from their primary business operations in the first quarter of 2023 due to growing inflation, declining consumer purchasing power, and the devaluation of the naira.

“As a result, these firms have increased their overall borrowings to finance their working capital (a measure of a company’s liquidity and short-term financial health) obligations to make profits and pay taxes,” Ayeni said.

Read also Corporate taxes remain key source of government revenues

Israel Odubola, a Lagos-based research analyst, said the government needs to be more intentional about ease of doing business and extend the tax base to capture more potential taxpayers.

“We need to expand our tax net further to include those not currently paying taxes but making taxable profits,” he said.

Other analysts said this trend makes it extremely unlikely that the federal government achieve its goal of boosting non-oil revenues, especially taxes, this year.

“The low company income tax will lead to low company income tax and may present budgetary challenges, affecting the government’s ability to fund public services, infrastructure projects, and social programs,” Kelvin Atafiri, CEO of Cavazanni Human Capital Limited, said.

Company income tax is currently charged at 30 per cent for companies with more than N100 million in turnover and 20 per cent for companies with a turnover ranging between N25 million and N100 million.

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

“The poor showing from CIT, VAT and customs revenues, in our view, reflects an economy struggling to find its feet,” Atafiri added.

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

Data from the National Bureau of Statistics (NBS) showed Nigeria’s Company Income Tax (CIT) experienced a significant decline of 37.79percent on a quarter-on-quarter basis, plunging from N753.88 billion in Q4 2022 to N469.01 billion in Q1 2023.

According to the National Bureau of Statistics (NBS), local payments accounted for N300.78 billion, while foreign CIT payments contributed N168.23 billion during the same period.

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“Poor revenue generation poses a challenge to Nigeria’s finances, ultimately affecting its capability to finance its budget — hence the resort to debt acquisition,” Atafiri said.

A financial analyst, Amaechi Egbo, said firms’ ability to pay taxes has been severely impacted by low-capacity utilisation due to poor purchasing power as most households were affected by the February cash scarcity.

He explained how huge import levies, exchange rate volatility, haulage cost of imported materials, and heavy dependence on alternative power sources have increased the sector’s production cost by almost 30 per cent.

Firms analysis

Seplat Energy Plc

Seplat recorded a 97.3 per cent decrease in income tax in the first half of 2023 to N1.42 billion from N51.84 billion recorded in 2022.

Its profit after tax amounted to N42 billion in the period under review from N35.44 billion recorded in 2022.

Dangote Cement Plc

Dangote Cement saw its tax expense decrease to N61.26 billion in the first half of 2023 from N92.78 billion recorded in 2022.

Profit after tax amounted to N178.6 billion in the first half of 2023 from N172.10 billion recorded in 2022.

MTN Nigeria Communications Plc

MTN Nigeria’s taxes decreased 17.58 per cent to N71.70 billion in the first half of 2023 from N87 billion recorded in 2022.

MTN Nigeria’s profit for the first half of 2023 declined to N128.69 billion, the lowest figure since 2020, compared to N181.63 billion recorded in 2022.

Bua Cement Plc

Bua Cement saw its tax expense reduce to N12.8 billion in the first half of 2023 from N13 billion recorded in 2023.

Profit after tax amounted to N63.6 billion in the first half of 2023 from N61.4 billion recorded in 2022.

Dangote Sugar Refinery Plc

Dangote decreased 64.38 per cent in its income tax to N3.38 billion in the first half of 2023 from N9.49 billion recorded in 2022.

It, however, recorded a loss in its profit after tax to N27.98 billion in the period under review from a profit of N20.24 billion recorded in the same period of 2022.