Companies in manufacturing, agriculture, and 12 other industries had a minimum 16% decrease in income tax payments, according to an analysis of the recently published Company Income Tax (CIT) report for the first quarter of 2024.
During the first three months of the year, companies in 14 out of 21 sectors saw a fall in CIT payments overall, which led to a 12.87% decline in CIT collection for the quarter.
For businesses with a turnover of N25 million or more, the federal government imposes CIT. For businesses with a gross turnover of between N25 million and N100 million, the CIT rate is 20%; for those with a turnover of more than N100 million, it is 30%.
The greatest reduction in CIT payments to the federal government was seen in the manufacturing sector, which had a 70.24% drop from N145.06 billion in Q4 2023 to N43.17 billion during the review period.
The industries that supplied steam, gas, and electricity had a 69.14% decrease in CIT payments, from N16.83 billion to N5.19 billion, closely trailed this.
CIT payments decreased by 59.31% in the agriculture industry and by 56.19% in the arts and entertainment sector.
Human health and social work (-16.20%), construction (-33.06%), accommodation and food services (-31.21%), education (-14.18%), information and communication (-6.88%), wholesale and retail trade (-39.66%), real estate services (-40.64%), other services (-52.47%), transportation services (-45.49%), and other sectors are also experiencing lower CIT payments.
Cause Of The Downturn
Dr. Muda Yusuf, Director of the Center for the Promotion of Public Enterprise (CPPE), ascribed the drop to the macroeconomic woes besetting the country, including high inflation, issues with currency rates, high input costs, and others.
As per his statement, “The fall in corporate tax payments indicates that the economic crisis is having an influence on the fortunes of firms. You are aware that CIT is levied on your profit, therefore if you do not make a significant profit, your tax payment will be lowered.”
“The current economic scenario, with FX, high inflation, and manufacturing costs, is unfriendly to enterprises, resulting in decreased sales, profit margins, lower capacity utilisation, and even firm closures. Some enterprises have closed their doors as a result of the hostile economic environment”
Issues Facing The Business Sector This Quarter
The FX rate fell to a record N1,500 to the USD in the first quarter of the year, and in March, inflation hit 33.2%. As a result, several businesses have experienced a decline in sales and have even closed.
The Stanbic Purchasing Managers’ Index (PMI) dropped from 54.5 in January to 51.1 in February due to business managers’ complaints about high input prices driven by weak exchange rates. During the month, entrepreneurs expressed dissatisfaction at input costs reaching their highest level in ten years.
When the PMI stayed stable in March, the business sector’s issues worsened as entrepreneurs lamented that high prices after a large currency loss were stifling demand.
Profit Falls Among Listed Businesses In Q1, 2024
Significant losses during the quarter were found by reviewing the financial performance of listed firms in a variety of economic sectors, which resulted in a decrease in tax payments. Lafarge Cement and Beta Glass Plc reported decreased tax payments in Q1 2024 compared to the same period the previous year in the manufacturing industry’s industrial products sector. Profit-after-tax for Lafarge decreased by 65% in the first quarter, while PAT for Beta Glass decreased from N1.89 billion to N1.43 billion.
The severe economic conditions significantly affected the consumer products industry, as corporations like Cadbury, Dangote Sugar, International Breweries, Nigerian Breweries, and others had losses during that time, which led to no tax payments.
After posting a profit of N3.5 billion during the same period the previous year, Cadbury reported a loss of N7.3 billion in the first quarter of 2024. In the first quarter of 2023, Dangote Sugar reported a profit of N12.80 billion, but an after-tax loss of N68.99 billion.
From N2.30 billion in Q1 2023 to an astounding N60.39 billion in Q1, 2024, International Breweries extended its losing record.
The pre-tax loss for telecom behemoth MTN Nigeria Plc in the first three months of 2024 was N575 billion, up from N162 billion in the same period the previous year.
In the Pay TV sector, MultiChoice, its South African counterpart, reported $190.5 million in foreign exchange losses from Nigeria.
Effect on Public Revenues
Companies will likely pay less in taxes as a result of the reported drop in earnings, and in the event of reported losses, they may receive tax benefits. This might have a substantial effect on government revenue.
The Federal Inland Income Service (FIRS) missed its income goal in the first quarter of the year by N860 billion, making the impact already apparent.
The service fell farther short of the annual objective of N19 trillion, generating N3.94 trillion out of a planned N4.8 trillion.
