Nigeria’s fledgling economic recovery is showing up in the performance of its largest listed firms as both profitability and company income tax liabilities are rising from levels seen a year ago.
With the Nigeria economy finally out of recession, President Muhammadu Buhari is targeting company income tax of N794.7 billion from a budget of N4.165 trillion for non-oil revenue for the nation’s 2018 budget.
Business Day analysis of the nine months 2017 results released by ninety-five (95) major companies listed on the Nigerian Stock Exchange (NSE) showed that combined after tax profits (for all 95 firms) were up by 6.47 percent to N543 billion, compared to N510 billion in the 2016 period.
Similarly income tax expense for the firms increased by 25.2 percent for the Q3, 2017 period to N154 billion from N123 billion, in 2016.
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Dolapo Ashiru, CEO of investment firm CLG Securities Limited, while reacting to the increase in profit after tax for 2017, said “We were deep in recession last year, and now we are out of recession, liquidity took its toll on the margin of most sectors of the economy, most especially in the consumer goods sector, luckily for banks, high interest rate environment helped them with interest income.”
Digging deeper into the Q3 results, it can be seen that the number of firms recording profit increased by 6.47 percent between 2016 and 2017 and they came from across various sectors.
Firms such as Nestle Plc, Dangote Sugar PLC, Unilever, oil producer Total PLC, Mobil and Forte Oil, Nascon Industries, Presco, Corner Stone Insurance PLC, beer makers such as Nigeria Breweries, cement manufacturer Dangote Cement, construction giant Julius Berger, and banks such as GTB, Access Bank, , Diamond Bank, Eco Bank all recorded increased profits compared to 2016.
Dangote Cement’s tax liability of N27 billion was the biggest in the nine months period, followed by Guaranty Trust bank with N24billion , Access bank’s N17billion, Nestlé’s N11billion and Nigeria Breweries N10 billion to round up the top 5.
The analysis also showed that a few big firms are paying a large percentage of the CIT, meaning most firms are small and probably need incentives to grow larger.
Company income tax (CIT) is the largest source of non-oil revenue for the FGN in the 2018 budget.
“While the medium term economic framework MTEF anticipated growth in revenue from CIT, the actual 2018 Budget appears conservative in view of the 2 percent reduction in expected revenues from this stream. This becomes more alarming in view of the assumption under the MTEF that companies’ profitability ratio will increase due to government’s ongoing efforts to improve the business environment with the ease of business campaign, leveraging private sector capital and increase in tax collection efficiency,” tax and consulting firm Deloitte said in a Nov 9 report on the 2018 budget.
Africa’s largest economy has come out of a 5 quarter slump as latest figures from the National Bureau of Statistics (NBS) show that gross domestic product (GDP) expanded by 0.5 percent in Q2 (three months through June, 2017) from a year earlier, after recording – 0.52 percent growth in the first quarter (Q1), 2017 and -1.73 percent growth in the fourth quarter (Q4), 2016.
Estimated non-oil tax revenue include proceeds from the proposed restructuring of FGN’s equity in joint ventures in the oil and gas sector as well as recoveries and proceeds from the on-going tax amnesty programme (Voluntary Asset and Income Declaration Scheme).
Ashiru of CLG Securities was very optimistic about Voluntary Assets and Income Declaration Scheme (VAIDS) which he believes should help in tax take even though there could be a shortfall in non-oil revenue because of the ineffectiveness in the tax system.
“Government should not increase taxes but rather should widen the tax net to enable more people to pay tax, and improve collections,” Ashiru said.
Oladipo Oladehinde, Bunmi Bailey and Endurance Okafor
