SUN, SEPT 10 2023-theGBJournal |Collections from Company Income Tax (CIT) increased significantly by 226.4% q/q to N1.53 trillion in Q2-23 (Q1-23: N469.01 billion) – its highest quarterly print on record, in line with analysts expectations, and according to recently released data from the National Bureau of Statistics (NBS).
We believe the substantial increase was primarily driven by the combined impact of NLNG’s one-off end-of-the-year corporate tax payment, return to normalcy after the CBN’s naira-redesign-induced slowdown in CIT payments in Q1-23, and improved tax compliance.
Consequently, there was a broad-based increase across local collections (+240.8% q/q to N1.02 trillion) and foreign CIT payments (+200.7% q/q to N505.91 billion).
On a year-on-year basis, total CIT collection increased by 114.3% (Q2-22: N714.40 billion). In the near term, we expect the impact of underwhelming demand and rising operation costs arising from FX liberalization and lingering increases in energy costs to slow down corporate performance and, subsequently, CIT collections.
Nonetheless, we expect the collections from CIT to remain upbeat relative to the prior year, given an increase in voluntary tax compliance and improvement in the automation of the tax administration process.
Meanwhile, VAT collections in Q2-23 settled higher by 10.1% q/q to NGN781.35 billion relative to Q1-23 (N709.59 billion). We note that the improvement in VAT collection in the review period was in line with the lingering increase in prices of goods and services and continued improvement in the automation of the country’s tax administration processes, including the updated VAT filing processes.
Accordingly, local (+17.4% q/q to N512.03 billion) and NCS-import (+3.5% q/q to N126.69 billion) VAT collections increased in the review period, counterbalancing the decline in foreign (-5.6% q/q to N142.63 billion) VAT collection.
On a year-on-year basis, collections from VAT increased by 30.2% (Q2-22: N600.15 billion), primarily supported by local VAT collections.
”Without downplaying the slowdown in domestic demand arising from the short-term impact of lingering reforms, we think VAT collections will remain resilient over the rest of the year,” says Cordros Research analysts.
”We hinge our expectations on the lingering factors supporting VAT collections. Hence, we expect the combined impact of higher VAT and CIT collections to support FGN’s non-oil revenue over the short-to-medium term,” Cordros said.
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