Nigeria generated a total sum of N327.1 billion revenue from Value Added Tax (VAT) in the second quarter of 2020, up by 0.81% when compared to N324.58 billion in Q1 2020. This is contained in the latest VAT report released by the National Bureau of Statistics (NBS).
Despite VAT remittance growing by 0.81% in the second quarter, critical sectors in the Nigerian economy such as manufacturing, hotel catering, trading, transport, oil, and construction recorded significant declines in VAT remittances during the period. Overall, twenty-one (21) of the twenty-eight (28) sectors recorded declines in VAT remittances in Q2 2020, a significant decline which may be largely attributed to the COVID-19 induced lockdown across the country during the period.
VAT by sectors: Breaking down the numbers
- In Q2 2020, the biggest decline in VAT remittance was from hotel and catering service with a 45.5% drop in VAT remittance from N2.52 billion received in Q1 2020 to N1.36 billion at the end of Q2 2020.
- Also, the manufacturing sector recorded a 19% decline in VAT remittance from N37.3 billion in Q1 2020 to N30.2 billion. Expectedly, VAT earning from oil marketing plugged 18.8%, while oil production dropped by 7.4%.
- Other critical sectors that recorded declines in VAT earnings in Q2 2020 include Automobiles (-30%), Breweries (-27.3%), Construction (22.9%), Commercial and Trading (-19%), Agriculture and Plantation (-14.8%).
- Meanwhile, despite significant decline across critical sectors, the increase in VAT was largely driven by pioneering. In Q2 2020, Nigeria received 643.7% boost in pioneer VAT remittances, from N868.8 million in Q1 to N6.46 billion in Q2 2020. This represents the biggest growth in VAT remittances across all sectors in the period.
Revenue challenge threatens 2020 budget implementation
The decline in Value Added Tax across some key sectors in the Nigerian economy implies that uncertainty still surrounds the effective implementation of the 2020 budget.
Recall that in the 2019 budget, Nigeria projected a total Value Added Tax revenue of N1.7 trillion as it anticipated higher tax revenues from vatable goods and services. Meanwhile, Value Added Tax collected during the year was N1, 188.85 (billions) compared to a budget of N1,703.89 billion, thereby representing a negative variance of N515 billion or 30%.
Again, in the recently approved 2020 revised budget, the FG once again estimated total Value Added Tax revenue of N2.03 trillion. However, in H1 2020, the total Value Added Tax generated by Nigerian is estimated at N651.7 billion, represents 32.1% of target met.
COVID-19 pandemic has dealt the world economy a huge blow, characterized by travel restriction, supply chain disruption and weak oil prices. Nigeria on the other hand has not been spared by the economic downturn with revenue expected to decline further amid recession fears.