Multinational payment doubles FG's corporate tax haul on weaker naira

The Federal Government’s tax revenue from companies in Nigeria has more than doubled in one year largely on the naira devaluation.

The latest Company Income Tax (CIT) report by the National Bureau of Statistics (NBS), shows that the tax revenue rose by 115.9 percent to N1.75 trillion in the third quarter of 2023 from N810.2 billion in the same period of last year.

It also rose on a quarter-on-quarter basis by 14.3 percent from N1.53 trillion.

A breakdown of the report showed that payments from foreign companies rose by 116.9 percent to N1.10 trillion in Q3, the highest since 2015 from N505.9 in Q2. On a year-on-year basis, it also grew by 235.6 percent from N327 billion.

Tax revenue from local companies declined by 36.4 percent to N651.6 billion in Q3 from N1.02 trillion in the previous quarter, mirroring the country’s tough business environment. But on a year-on-year basis, it grew by 34.9 percent from N483.2 billion.

CIT which is also known as corporate tax is a levy the government imposes on the income of a company.

The 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.

“The naira devaluation contributed to the increase in company income tax revenues. Companies that make their income in dollars pay their taxes in dollars too,” Oladejo Adeyemi, a senior manager at the Commercial Practice Group at Andersen in Nigeria said.

He added that the devaluation, makes it look like the government has collected more when in fact they have collected less when taken in dollars. “Nobody is celebrating anything because, in real terms, companies have not seen the impact in their revenue and cost.”

The Central Bank of Nigeria in June merged all segments of the foreign exchange market into the Investors and Exporters window and reintroduced the willing buyer, willing seller model.

The naira has continued to depreciate against the dollar and other major foreign currencies since then.

The official exchange rate increased from N463.38/$ to N843.07/$ as of Thursday. At the parallel market, the naira depreciated to N1,178/$ from 762/$.

The high cost of sourcing FX was one of the major factors that pushed Nigeria’s inflation rate to an 18-year high of 27.33 percent in October from 26.72 percent in the previous month, according to the NBS.

The CIT report also highlighted that on a quarter-on-quarter basis, education recorded the highest growth rate with 59.6 percent, followed by public administration and defence, and compulsory social security with 57 percent.

“On the other hand, activities of households as employers, undifferentiated goods- and services-producing activities of households for own use had the lowest growth rate with –74.34 percent, followed by Water supply, sewerage, waste management, and remediation activities with -73.25 percent,” it said.

In terms of sectoral contributions, information and communication (26.2 percent) manufacturing (23.9 percent) and mining and quarrying with (11.7 percent) were the top three largest shares in Q3.

While the activities of households as employers, undifferentiated goods- and services-producing activities of households for own use recorded the least share with 0.00 percent, followed by water supply, sewerage, waste management, and remediation activities with 0.04 percent and activities of extraterritorial organisations and bodies with 0.10 percent.

During the public presentation of the country’s 2024 Budget Proposals on November 29, Abubakar Bagudu, minister of Budget and Economic Planning revealed that the federal government achieved N8.65 trillion in revenue in the first nine months of this year from its pro-rata target of N8.28 trillion.

Out of the N8.65 trillion revenue, N1.42 billion was generated from oil revenues, while non-oil revenues totaled N2.50 trillion.

CIT and Value Added Tax collections were N1.55 trillion and N318.95 billion. At the same time, other revenues amounted to N4.74 trillion, of which independent revenues from ministries, departments and agencies, as well as government-owned enterprises, were N1.28 trillion.

“The yield for non-oil tax revenue has continued to grow due to the efficiency from technology deployed by Federal Inland Revenue Service,” Yomi Olugbenro, partner and West Africa Tax Leader at Deloitte, said.

He added that the impact of foreign exchange unification has also continued to have positive impact on overall tax revenue of government.

The government recently announced plans to review and reduce tax waivers given to companies operating in Nigeria.

Taiwo Oyedele, president of the Presidential Tax Reform Committee, said Nigeria’s total tax incentive to companies is about N6 trillion annually.

According to him, the target is to achieve an 18 percent tax-to-GDP ratio over the next three years while ensuring reduced taxes payable by Nigerians.

“If you look at our tax expenditure reports over the past three to four years, we are giving away around N6tn per annum on average. That is significant. What we have not been measuring enough is the benefit we are getting from that.

“But I can confirm to you that part of the mandate given to us by the president is to look at the incentive regime in Nigeria so that we can, based on data and evidence, design what is appropriate for us as a country,” he added.