According to the data published by the Nigerian Bureau of Statistics (NBS), total Value Added Tax (VAT) collected in Q1 2020 was N338.94bn, a growth of 10% when compared with N308.48bn collected in Q4 2019. We note that the VAT generated in Q1 2020 is the highest since NBS began publishing the data in Q1 2013. On a y/y basis, VAT revenue grew 16%, largely driven by VAT on locally produced goods (up 26% y/y to N172.67bn) – we believe the sturdy growth is reflective of the impact of the hike in Value Added Tax (VAT) from 5% to 7.5% that took effect on February 1.
Further breakdown of the data revealed that VAT on locally produced goods (i.e. Non-Import VAT) contributed the most at 51% while VAT on imported goods (i.e. Import VAT) contributed 21%. From a sectoral perspective, the highest contributing sectors to Local VAT revenue were Professional services (22%), Other manufacturing (22%), Commercial and trading (10%), Breweries, bottling and beverages (8%) and State Ministries & Parastatals (6%). Local government councils (0.18%), Textile & garment industry (0.18%) and mining (0.04%) had the lowest contribution.
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Although we expect the recent increment in the VAT rate to support growth in VAT on locally produced goods, in the short term, we expect the momentum as aggregate demand weakens due to a reduction in income levels and job losses brought about by the global pandemic. In addition, we believe the ban on social gatherings, closure of hotels and bars will reduce the consumption of soft drinks and beer, exerting further pressure on VAT levied on locally produced goods. Similarly, we believe the growth in VAT on imported goods will be constrained by the disruption to the global supply chain, as importers and manufacturers cut back on purchasing plans in response to the slowdown in demand for goods and services.
By CSL Stockbrokers Limited CSL Stockbrokers, a member of the Nigerian Stock Exchange