Nigeria’s Value Added Tax (VAT) earnings have more than doubled in the first seven months of 2024 compared to the same period last year.
This is according to data gathered from official documents of the Federal Inland Revenue Service (FIRS).
From January to July 2024, total VAT earnings soared to N3.62 trillion, a staggering 102% increase from the N1.79 trillion collected during the same period in 2023.
This surge reflects an additional N1.83 trillion in VAT revenue year-over-year.
This significant increase comes at a time when Nigerians are grappling with escalating costs of living, raising questions about the economic implications for both the government and its citizens.
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What the data says
Nairametrics observed that non-import VAT has been a major contributor to general VAT earnings for Nigeria.
From January to July 2024, Non-Import VAT contributed N2.77 trillion, representing 76.5% of the total VAT earnings of N3.62 trillion.
This marks a sharp increase compared to the same period in 2023, where Non-Import VAT stood at N1.47 trillion, contributing 82% of the total VAT at the time.
While the share of Non-Import VAT decreased slightly percentage-wise in 2024, its actual contribution rose significantly by 88.76% year-on-year. This suggests increased domestic consumption and broader enforcement of VAT collection across goods and services within the country.
In contrast, Import VAT saw a much higher percentage increase of 162.58%, from N324.20 billion in 2023 to N851.27 billion in 2024.
This reflects higher volumes of imported goods, likely driven by inflationary pressures and changes in foreign exchange and trade policies.
Also, the substantial growth in Import VAT suggests a significant increase in imported goods and services, which may be contributing to the higher costs of living due to foreign exchange dynamics and import-dependent consumption patterns.
A detailed month-by-month analysis of VAT collections throughout the first seven months of 2024 reveals consistent and substantial increases compared to the corresponding months in 2023.
In January 2024, VAT collections amounted to N420.73 billion, representing a significant 68.29% increase from the N250.01 billion collected in January 2023.
This increase marks the start of the year with a sharp rise in government earnings, likely driven by increased consumption during the holiday season and the impact of economic adjustments made late in the previous year.
By February 2024, VAT earnings had risen even further, reaching N460.49 billion, compared to N240.80 billion in February 2023.
This 91.24% growth highlights a near doubling of VAT revenue within one year, reflecting both higher consumption and improved tax collection measures.
March 2024 witnessed the most dramatic rise in VAT revenue, with collections soaring to N549.70 billion, a remarkable 151.31% increase from the N218.79 billion generated in March 2023.
In April 2024, VAT collections continued their upward trajectory, reaching N500.92 billion, up from N217.74 billion in April 2023. This represents an increase of 130.05%, further solidifying the trend of sustained revenue growth.
The month of May 2024 saw VAT earnings climb to N497.66 billion, compared to N270.20 billion in May 2023, reflecting an 84.20% increase. While not as pronounced as in previous months, this growth is still substantial and indicates a continued rise in taxable transactions.
By June 2024, VAT collections had risen to N562.69 billion, an increase of 91.75% from the N293.41 billion collected in June 2023.
July 2024 recorded the highest VAT earnings of the year so far, with N625.33 billion collected, marking a 109.31% increase from the N298.79 billion recorded in July 2023. The fact that July saw the highest collection is significant, as it reflects peak mid-year consumption and the effect of sustained economic activity throughout the first half of the year.
The doubling of VAT earnings reflects the government’s intensified efforts to boost revenue amid economic challenges. However, this surge coincides with a period where Nigerians are facing unprecedented increases in the cost of living.
What you should know
The VAT rate in Nigeria is 7.5% for local (Non-Import) and imported (Import VAT) items.
VAT is a consumption tax applied to goods and services, meaning that higher VAT collections can be indicative of increased consumer spending or higher prices of goods and services—or both.
Given the current economic climate, the latter seems more plausible, suggesting that Nigerians are paying more for the same goods and services than they did a year ago.
Inflation, driven by factors such as the depreciation of the naira, higher production costs, and increased fuel prices, has led to a higher cost of goods across Nigeria. As prices go up, VAT, which is charged as a percentage of the value of goods and services, naturally rises as well.
For instance, when the price of basic goods such as food, fuel, and transportation increases, the VAT collected on these items also grows, resulting in larger tax revenues for the government. The inflationary pressure has compounded this effect, making each purchase more costly for consumers, and consequently raising the VAT collected on these transactions.
This trend is evident across various sectors, from retail to manufacturing, where businesses pass on the cost increases to consumers, who then pay higher prices inclusive of VAT.
The Presidential Committee on Fiscal Policy and Tax Reforms has recommended an upward review of the Value Added Tax (VAT) from the present 7.5% to 10% from 2025. The chairman of the committee, Taiwo Oyedele, made this known during an appearance on Channels TV.
However, former Vice President Atiku Abubakar has criticized the federal government’s proposed increase of the VAT rate to 10%, warning that the move will exacerbate Nigeria’s already dire economic situation.
In a post on his official X (formerly Twitter) account, Atiku expressed concerns that the proposed tax hike, along with other recent government policies, will deepen the cost-of-living crisis, hurt businesses, and disproportionately impact the poor.
While the government’s revenue boost is positive from a fiscal standpoint, the burden on consumers could dampen economic growth.
In response to these concerns, the Oyedele-led committee has proposed to the federal government the removal of taxes on food, public transportation, house rents, and other necessities critical to the well-being of Nigerians.
Oyedele said the proposal will soon be signed by President Tinubu before being sent to the National Assembly to become part of the tax laws in the country.
