Manufacturing remains biggest source of VAT collection

Nigeria’s manufacturing sector remains the biggest source of Value Added Tax (VAT) collection, generating N96.12bn from the N876.09bn realized by the federal government through VAT in nine months (January – September) 2019.

According to the latest statistics released by the National Bureau of Statistics, within the period under review professional services came second with N85.98 billion while commercial and trading trailed a distant third with N45.66 billion.

Other sectors that make up Nigeria’s top 10 biggest VAT sources during the period include Breweries, Bottling and Beverages (N31.8 billion), State Ministries and Parastatals (N29.24 billion), Oil Producing (N27.64 billion), Federal Ministries and Parastatals (N25.08 billion), Transport and Haulage Services (N17.63 billion), Banks and Financial Institutions (N12.68 billion) and the last item not defined generated a total of N11.05 billion.

Analysis of VAT trend in Nigeria shows in the last four years, VAT rose by 45%, amounting to N348.60 billion. According to the NBS data, VAT trend shows that in 2015 (full year), Nigeria generated N759.4 billion. Fast forward to 2018, total VAT generated rose to N1.108 trillion.

Meanwhile, despite the increase in VAT revenue in the last 4 years, the percentage of year-on-year change has been on the decrease. For instance, between 2017 and 2018, VAT generated by Nigeria rose only by 14%, from 25% in the previous year. This means the 2018 fiscal year suffered a major setback in terms of revenue generation.

Considering the cumulative N876 billion generated so far in 2019, the Federal Inland Revenue Service requires a really big push in VAT generation to surpass the amount generated in the previous year.

The Federal Government of Nigeria has not hidden its agenda to drive in more revenue from the fiscal side of the economy, as several policies have been introduced in recent times.

Some of the policies introduced by the government include increasing target for revenue-generating agencies, raising VAT by 50%, and reviews of various tax laws which are all included in the proposed 2019 finance bill.

As the manufacturing sector remains the biggest source of VAT generation, it suggests FG’s revenue drive may deal a big blow to stakeholders in the manufacturing sector as sales may be on the low due to consumers’ expectations.