The Nigerian manufacturing sector has witnessed a significant surge in tax contributions, reaching a nine-month high in the second quarter of 2024 despite ongoing economic challenges.
This is according to newly released data from the National Bureau of Statistics (NBS).
In Q2 2024, the total tax paid by manufacturers, which combines both Company Income Tax (CIT) and Value Added Tax (VAT), amounted to N405.86 billion.
This represents an 84.1% increase from the N220.35 billion collected in Q1 2024 and a marginal 2.1% decrease compared to the same period in Q2 2023, when the total tax stood at N414.51 billion.
What is the data saying
The CIT paid by the manufacturing sector in Q2 2024 saw a significant rebound, increasing to N221.97 billion.
This marks a 413.9% increase from Q1 2024, when the CIT collected was N43.17 billion.
However, despite this strong recovery, the CIT remains 15.5% lower than Q2 2023, where the CIT contribution reached N262.73 billion.
The VAT contributions in Q2 2024 also rose to N183.89 billion, reflecting a 3.8% growth from Q1 2024’s N177.17 billion.
When compared to Q2 2023, the VAT collections increased by 21.1%, up from N151.78 billion.
The data also shows that manufacturers contributed 8.99% of the total CIT and 11.78% of the total VAT in Q2 2024.
These contributions highlight the manufacturing sector’s critical role in Nigeria’s fiscal landscape, particularly as it emerged as one of the largest contributors for CIT and VAT in the quarter.
What you should know
Nairametrics earlier reported that Nigeria’s manufacturing sector’s contribution to the Gross Domestic Product (GDP) witnessed a significant contraction over the past two quarters, reflecting a decline of 20.95% from the end of 2023 to the second quarter of 2024.
This decline over the first half of 2024 highlights the sector’s vulnerabilities, particularly in the face of ongoing economic and infrastructural challenges.
Despite these challenges, the sector has remained a major contributor to government taxes.
The standard CIT rate in Nigeria is 30% of a company’s taxable profits for large companies (those with annual gross turnover of more than N100 million). Medium-sized companies (with turnover between N25 million and N100 million) are charged a CIT rate of 20%. Small companies (those with an annual turnover of less than N25 million) are exempt from CIT.
VAT in Nigeria is charged at a standard rate of 7.5%. It was increased from 5% in 2020 as part of government efforts to boost revenue.
These taxes form a substantial part of Nigeria’s overall revenue base and play a crucial role in funding the country’s economic development and public services.
Despite the upward trend, the sector’s CIT contribution has not yet returned to the peak levels seen in mid-2023, pointing to a need for continued policy reforms and economic stabilization efforts.
The slight dip in total tax collections compared to Q2 2023 indicates that while the manufacturing sector is recovering, external pressures such as inflation, foreign exchange volatility and high production costs might still be affecting overall profitability.
Last year, the Chief Consultant of B. Adedipe Associates Limited, Dr Biodun Adedipe, said that Nigerian manufacturers are confronted with about 74 different taxes from their factory to the market and down to the final consumer.
He also used the occasion to urge the Federal Government to do something about the ease of doing business to make the country more globally competitive.
The Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, Taiwo Oyedele recently said that the committee has proposed an exemption of manufacturers and farmers from paying withholding tax as a way of reducing the tax burden on businesses.
Last month, the Director-General of Manufacturers Association of Nigeria (MAN) , Mr. Segun Ajayi-Kadir, criticized the multiple and high rates of taxes and levies imposed by the three tiers of government and their agencies.
Ajayi-Kadir noted that the challenges facing the manufacturing sector, particularly due to the current macroeconomic conditions, are exacerbated by the ongoing foreign exchange volatility and high electricity tariffs.
He also called on manufacturers to support the implementation of the recommendations from the Presidential Committee on Fiscal Policy and Tax Reforms.