Earlier this week, the Nigerian Bureau of Statistics (NBS) published data on Value Added Tax (VAT) collection for the first nine months of 2020. According to the data, VAT collection increased by a decent 22.9% y/y to N1.1tn in 9M 2020 from N876.1bn in 9M 2019.
READ: FEC approves VAT increase of 7.5%, targets N7.5 trillion revenue
Unsurprisingly, VAT collection for Q3 2020 was higher by 29.8% q/q and 54.4% y/y to N424.7bn from N327.2bn and N275.1bn in Q2 2020 and Q3 2019 respectively. Across sectorial classifications, the biggest contributors to the y/y growth in VAT collections in 9M 2020 were Professional services (up 39.5% y/y) and Other manufacturing (up 19.3% y/y), State Ministries & Parastals (up 44.1% y/y) and Transport and Haulage Services (up 82.3% y/y). We note that the y/y improvement was largely supported by the implementation of the 50% increase in VAT rate from 5% to 7.5% in February 2020.
READ: Finance Minister, Zainab Ahmed says Nigeria’s VAT collection rate is low
Further analysis of the data provided insight into the level of recovery in economic activities in Q3 2020. As noted earlier, VAT collections grew 29.8% q/q which was largely driven by increase in the value of transactions eligible for VAT deductions given VAT rate was flat at 7.5% in Q2 and Q3 2020. However, we note the faster increase of 54.4% y/y (i.e. compared with Q3 2019) evidences the additional impact of the higher VAT rate in Q3 2020 (7.5%)
compared to Q3 2019 (5.0%). We think the decent improvement recorded in Q3 2020 comes as a result of the lifting of covid-19 restrictions which curtailed economic activities in many sectors of the economy. Notably, the sectors that drove the q/q recovery such as Manufacturing (up 55.6% q/q), Professional Services (up 17.0% q/q), State Ministries & Parastals (up 65.9% q/q), Commercial & Trading (up 52.2% q/q) were all sectors that were
impacted by the lockdown measures in diverse ways.
READ: Flourmills posts impressive Q3, sustains recovery in 2020 financial year
READ: FIRS to deploy new technology in tax collection, as MDAs refuse to pay 7.5% tax
However, we note that underlying economic activities remain weak on a y/y basis despite the increase in VAT collections in Q3 2020. Adjusting for the the 50% increase in VAT rate, VAT collections would have increased by a marginal 2.9% y/y in Q3 2020. This evidences that aggregate spending remains and economic activities in general remain weak.
READ: Covid-19: POS transaction value drops by N96 billion due to lock down in April
CSL Stockbrokers Limited, Lagos (CSLS) is a wholly owned subsidiary of FCMB Group Plc and is regulated by the Securities and Exchange Commission, Nigeria. CSLS is a member of the Nigerian Stock Exchange.
