Value Added Tax (VAT) is fast becoming a significant source of revenue to the federal government of Nigeria. The overreliance on the volatile earnings from crude oil is making government at all levels to go the extra mile. So, with VAT, government aims to raise the contribution of non-oil revenue to the national revenue pool. The latest information in town on government’s revenue is VAT. Based on the data gathered by the National Bureau of Statistics (NBS) which was made public recently, it could be observed that VAT has shown a new trend different from what we have known it for in the past five years.
A simple analysis of the VAT trend from 2015 to date shows that the first quarter of each year’s VAT has always been less than the second quarter. However, for the year 2020, the first quarter of 2020 VAT at N172,67 billion is more than the VAT, N163.15billion, generated in the second quarter of 2020. This shows that unlike the trend which has been observed from the past five years, in 2020 the first quarter is greater than the second quarter.
One of the reasons for the new trend is the coronavirus lockdown which affected the general economic activities more particularly in the second quarter of 2020. In an attempt to curtail the covid 19 pandemic in Nigeria, the Federal Government of Nigeria, in collaboration with states, locked major Nigerian cities since April. As VAT depends on the level of buying and selling going on in a country, the decline noticeable in Q2 2020 VAT is attributable to the non-pharmaceutical measures taken by the FG. Apart from that, the rising unemployment is another factor. According to the NBS, the number of unemployed Nigerians is now at 22 million individuals with unemployment rate at 27.1 percent, thus putting Nigeria among countries with serious economic crisis.
Source: NBS, BRIU
Taking a deeper dive into the VAT analysis for the first two quarters of 2020, the leading five sectors that generated the most VAT in first quarter were Professional Services, Other manufacturing, Commercial trading, Breweries, Bottling and Beverages, and States’ ministries and parastatals. In the first quarter of 2020, Professional services generated N38.3billion VAT; Other manufacturing generated N37.37 billion; Commercial trading, N17.19 billion; Breweries, Bottling and Beverages, N14.34 billion and States’ ministries and parastatals, N10.66billion.
These are what the nation generated as VAT through different sectors in the second quarter of 2020. It was N37.63billion that was generated from the Professional Service’s sector; Other manufacturing, N30.26 billion; Commercial Trading, N13.92 billion; State ministries and parastatals; N11.84 billion, as well as Transport and Haulage Services; N12.63billion. In general, professional services contributed 11.65 percent to the overall pool; Other manufacturing contributed 10.38 percent; Commercial and Trading accounted for 4.77 percent just as other sectors which include Breweries, Bottling and Beverages contributed 3.80 percent; States’ ministries and parastatals, 3.45 percent, while Transport and Haulage Services was responsible for 3.11 percent, and thus established the rankings of the major sectors contributing to VAT as at the end of half year.
Source: NBS, BRIU
In comparison to the previous year’s analysis, that is, H1 2019, Breweries, Bottling and beverages grew by 12.03 percent; commercial and trading reduced by 0.29 percent, other manufacturing grew by 2.7 percent; professional services increased by 40.87 percent; states’ ministries and parastatals grew by 21.68 percent, and transport and haulage grew by 105.73 percent. This growth shows an increase in VAT amount collected across some sectors. With the lockdown implemented in Q2 2020, the observed increase in VAT could be attributed to the directive given by the government which led to the increase in VAT from 5 percent to 7.5 percent
On a quarter on quarter basis, it could be seen that though some of the sectors grew or reduced in value, in terms of degree, some sectors grew more significantly, while some decreased significantly. The highest recorded quarter on quarter growth for the year 2020 was Transport and Haulage services. In comparison to its value as of quarter two of 2019, it grew by 153.73 percent. This could be attributed to the increase in transport fares by the second quarter.
The average transport fare paid by commuters for bus journey within the city increased by 3.36 percent month-on-month and by 25.76 percent year-on-year to N229.94 in June 2020 from N222.46 in May 2020, according to NBS. While the highest recorded decline was by the federal ministries and parastatals, which went down by 22.90 percent.
Other than Transportation and Haulage Services, another sector that grew significantly was Pharmaceuticals, Soaps and Toiletries. This sector grew by 43.64 percent and this growth could be attributed to the COVID 19 pandemic. The lockdown which lasted for a period of four months led to increased consumption of basic necessities such soaps and toiletries as individuals made attempts to reduce getting infected, while the fear of COVID 19 led to an increase in drug usage.
But when a comparison was made on the VAT generated from professional services between first and second quarters of 2020, we saw a decrease in value of 1.75 percent in Q2 2020 as compared to its first quarter value. This could be attributed to the coronavirus pandemic as during the first quarter the lockdown hadn’t started and so people and businesses were not under any restrictions. However, in the second quarter, the lockdown had started, offices were shut down and so demand for stationery, consumables and associated services decreased significantly.
Other manufacturing saw a decrease of 19.03 percent in value as compared to its value at first quarter, and this also could be attributed to the compulsory lockdown that was enforced in the second quarter. Commercial trading decreased by 19.01 percent as compared to its value in the first quarter. This was due to the decrease in economic activities during the lockdown, as for a long period of time, the lockdown did not permit movement of goods, services and people.
States’ ministries and parastatals increased by 11.05 percent compared to its value in first quarter. Breweries, Bottling and Beverages decreased by 27.25 percent as compared to its value in the first quarter of the year, but transport and haulages increased by 64.84 percent as compared to its value in the first quarter of the year.
It can therefore be seen that the increase in VAT from 5 percent to 7.5 percent led to an increase in half year 2020 VAT revenue, but then due to factors such as the coronavirus pandemic and the measures taken to curtail it, some sectors experienced a decline in growth.
