Nigerian Government Records N1.78 Trillion VAT Revenue in Q3 2024

The Nigerian government generated N1.78 trillion from Value Added Tax (VAT) in the third quarter of 2024, according to the National Bureau of Statistics (NBS) latest report, which revealed a 14.16% increase from the N1.56 trillion collected in the preceding quarter and an 88% growth compared to Q3 2023.

This marks a significant increase from what was recorded the same period the previous year, which is attributed to the federal government’s determination to bolster fiscal revenues through improved tax compliance and administration.

VAT collections for the period were sourced from three main streams. Local VAT payments contributed the highest, with N922.87 billion collected, followed by foreign VAT payments amounting to N448.85 billion. Import VAT added N410.62 billion to the total revenue. These figures highlight the growing integration of both domestic and international economic activities within the Nigerian tax framework.

Sectoral growth patterns revealed a mixed performance. Human health and social work activities stood out with an astonishing quarter-on-quarter growth of 250.39%, driven by intensified formalization and tax enforcement in this area. Similarly, activities of households as employers and undifferentiated goods and services-producing activities for household use expanded by 102.09%.

Conversely, some sectors experienced notable declines, including water supply, sewerage, waste management, and remediation activities, which dropped by 41.92%, and activities of extraterritorial organizations and bodies, which recorded a 36.14% decline.

In terms of contributions to the overall VAT pool, the manufacturing sector led with 22.21%, followed closely by information and communication at 20.89%, and mining and quarrying activities at 18.90%. On the lower end, activities such as those of households as employers and undifferentiated household services made minimal contributions, reflecting the informal nature of these sectors.

The significant increase in VAT revenue showcases the success of current measures to expand Nigeria’s tax base. However, despite this increase, Nigeria’s VAT rate remains one of the lowest globally. At 7.5%, it pales in comparison to rates in other countries, where VAT often ranges between 15% and 25%. This comparatively low rate, while beneficial for consumers and businesses, has limited the government’s capacity to generate sufficient revenue to address critical developmental needs.

President Bola Tinubu’s administration is keen to change this trajectory. The proposed tax reform bills currently before the National Assembly aim to address the shortcomings in Nigeria’s tax structure. Among the key provisions is an increase in the VAT rate from 7.5% to 10%. This move is expected to align Nigeria more closely with global VAT standards and significantly boost revenue. The reforms are also designed to simplify tax processes, enhance compliance, and reduce evasion.

The VAT reform is not without controversy, particularly in its approach to revenue sharing. Under the existing VAT Act, revenue is allocated based on a formula that gives 15% to the federal government, 50% to states and the Federal Capital Territory (FCT), and 35% to local governments. Additionally, a derivation principle ensures that at least 20% of VAT revenue is allocated based on the state of origin.

The remaining distribution considers equality and population as factors. Critics of the reform, particularly governors and lawmakers from Nigeria’s 19 Northern states, argue that increasing reliance on a derivation principle could marginalize less industrialized regions, as VAT revenues tend to be higher in economically vibrant Southern states.

Advocates for the reforms argue that they will incentivize states to expand their economies and enhance governance, ultimately leading to a more equitable and productive national economy. The tax bills have been put on hold for wider consultation.