Improved economic condition witnessed in the Nigerian economy in 2018 has paid off as the federal government recorded N1.10 trillion in total value added tax (VAT) generation, highest value in six years.
“The increase in VAT reflects the increase in the level of economic activities in 2018”, Johnson Chukwu, managing director/CEO, Cowry Asset Management Limited told BusinessDay by phone interview.
According to the National Bureau of Statistics (NBS), total VAT value appreciated by 14 percent from N972.35 billion in 2017.
However, this is a slowdown in growth compared to a 25 percent growth in VAT recorded in 2017.
Statistics has shown that there exist a strong correlation between economic growth and VAT revenue growth.
The slowdown was largely contributed to by a decline in VAT revenue in the second quarter (Q2) 2018 due to decelerating growth in Gross Domestic Product (GDP) also in Q2.
Analysis of quarter on quarter (Q/Q) trend in VAT in 2018 revealed that while the economy slowed down in Q2 to 1.5 percent from 1.92 percent in the first quarter (Q1), VAT revenue declined marginally by 1 percent.
2018 VAT levels signalled improved consumer spending and consumption in 2018 as statistically there has been a strong correlation in the movement of household spending and VAT revenue generated.
The NBS report released on Thursday showed that Out of the total amounted generated in Q4 2018, N138.42bn was generated as Non-Import VAT locally while N47.89bn was generated as Non-Import VAT for foreign. The balance of N111.71bn was generated as NCS-Import VAT.
Chukwu said Non-import VAT locally relates to consumption of local items. The NCS-import relates to VAT imposed on custom duty at the point of importation. “Because people did not go for VAT credit as much as they should, so you are dealing with non-import vat which could actually be vat on imported goods at the point of consumption”.
“If you have a higher consumption tax, it’s actually should indicated that the economy is improving to the extent that the consumers are consuming more. In the sense of it, it is positive”, he said.
In 2016, according to data from World Data Indicator (WDI), while household spending declined 18 percent VAT revenue grew marginally by 2 percent against 54 percent growth in the previous year.
Decline in household expense improve however in 2017 and we saw VAT revenue surge by 25 percent. Although, household spending in 2018 isn’t available, we estimate an improved spending.
According to NBS report, other manufacturing maintained being the highest contributor to VAT generation as it accounted for 11 percent of the total value. VAT generated from the sector amounted to N122.89 billion.
Growth in other manufacturing sector classification y/y stood at 2.76 percent, making the sector seat at the bottom of sector growth chart.
Taiwo Oyedele, head, Tax and Regulatory Services, PWC, said, the increase in VAT in the 4th quarter is reflective of the higher level of economic activities mostly due to Christmas and other end of the year festivities.
This is he said also consistent with the relatively higher GDP growth rate recorded for the same period. To some extent more VAT must have been collected through the efforts of the FIRS aimed at improving tax compliance.
However, year-on-year (y/y) growth amongst the sectorial distributions shows that VAT generated from local government councils grew the highest by 140.33 percent to N1.5 billion, leading the chart.
Others includes Stevedoring, clearing and forwarding (38.46%), Properties and Investments (35.46%), Pioneering (35.36%), and Mining (34.75%); making the top five sectors on the chart.
HOPE MOSES-ASHIKE and DAVID IBIDAPO
