Nigeria’s VAT Collection Hits N1.78 Trillion in Q3 2024
Nigeria recorded an impressive value-added Added Tax (VAT) revenue of N1.78 trillion in the third quarter (Q3) of 2024, marking a significant achievement in tax collection. This robust figure was driven by three main streams:
Local VAT Payments: N922.87 billion
Foreign VAT Payments: N448.85 billion
Import VAT: N410.62 billion
Highs and Lows Across Sectors
Human health and social work activities stood out with a staggering 250.39% quarter-on-quarter growth, followed by activities of households as employers and undifferentiated goods and services-producing activities for household use, which grew by 102.09%.
On the flip side, certain sectors experienced steep declines:
Water supply, sewerage, waste management, and remediation activities recorded the sharpest drop, falling by 41.92%.
Activities of extraterritorial organizations and bodies declined by 36.14%.
Sectoral Contributions
The manufacturing sector led the way, contributing 22.21% to the total VAT revenue, followed by:
Information and Communication: 20.89%
Mining and Quarrying: 18.90%
Meanwhile, sectors at the bottom of the contribution ladder included:
Activities of households as employers and undifferentiated household activities: 0.01%
Activities of extraterritorial organizations and bodies: 0.01%
Water supply, sewerage, waste management, and remediation activities: 0.03%
Year-on-Year Growth
The Q3 2024 VAT revenue represented an 88% year-on-year increase compared to Q3 2023. This remarkable growth underscores the government’s improved tax administration efforts and enhanced compliance mechanisms.
Ongoing Debates on Revenue Sharing
Despite the positive VAT figures, discussions surrounding the allocation of VAT revenues remain contentious. The proposed tax reform bills before the National Assembly aim to revise the current revenue-sharing formula to reflect a derivation principle, sparking intense debate among stakeholders.
Current Allocation Formula
Under Section 40 of the VAT Act, VAT revenues are allocated as follows:
Federal Government: 15%
States and Federal Capital Territory (FCT): 50%
Local Governments: 35%
The states’ and local governments’ allocation includes a derivation principle of at least 20%, although other factors, such as equality (50%) and population (30%), also influence distribution. Additionally:
4% of VAT collections go to the Federal Inland Revenue Service (FIRS) as a collection fee.
2% is allocated to the Nigeria Customs Service (NCS) for import VAT.
Northern Opposition to Derivation-Based Sharing
Governors of the 19 Northern states, supported by traditional rulers and regional stakeholders, have voiced opposition to the proposed derivation principle in VAT allocation. Northern lawmakers in the National Assembly have largely aligned with this stance, arguing that the proposed changes could disproportionately benefit wealthier states with higher VAT-generating activities, potentially deepening economic inequalities across the country.
Implications
The Q3 2024 VAT revenue surge is a testament to the government’s efforts to boost domestic revenue through strategic tax policies. However, the ongoing debates on revenue sharing highlight the need for balanced reforms that promote equity while encouraging states to enhance their revenue-generating capacity.
As Nigeria navigates this fiscal terrain, policymakers must ensure that reforms foster inclusivity and long-term economic stability across the federation.
Reference
Nigeria’s VAT Collection Hits N1.78 Trillion in Q3 2024