Despite persistent economic difficulties, tax contributions in the Nigerian manufacturing sector increased significantly, reaching a nine-month high in the second quarter of 2024.
This is supported by recently disclosed National Bureau of Statistics (NBS) statistics.
Combining Value Added Tax (VAT) and Company Income Tax (CIT), manufacturers paid a total of N405.86 billion in taxes in Q2 2024.
This is a marginal 2.1% decline from the same period in Q2 2023, when the total tax stood at N414.51 billion, and an 84.1% rise from the N220.35 billion collected in Q1 2024.
What Does The Data Indicate?
In Q2 2024, the manufacturing sector’s CIT paid increased significantly to N221.97 billion.
Compared to Q1 2024, when the CIT collected N43.17 billion, this is a 413.9% increase.
The CIT is still 15.5% less than it was in Q2 2023, when it was N262.73 billion, even with this robust rebound.
In Q2 2024, the VAT contributions increased to N183.89 billion, indicating a 3.8% increase from N177.17 billion in Q1 2024.
The VAT receipts grew from N151.78 billion to N21.1% more than in Q2 2023.
Additionally, according to the data, in Q2 2024, manufacturers contributed 11.78% of the total VAT and 8.99% of the total CIT.
These contributions demonstrate the vital role that the manufacturing sector plays in Nigeria’s fiscal landscape, especially because it was one of the major contributors to CIT and VAT during the quarter.
What to note
As previously reported by THE NEWS CHRONICLES, Nigeria’s manufacturing sector’s GDP contribution had a notable downturn over the last two quarters, with a decrease of 20.95% between the end of 2023 and the second quarter of 2024.
The sector’s weaknesses are highlighted by this fall during the first half of 2024, especially in view of the persistent difficulties in the economy and infrastructure.
The industry continues to make a significant tax contribution to the government despite these obstacles.
For major enterprises in Nigeria (those with an annual gross revenue of over N100 million), the normal CIT rate is 30% of taxable profits. A 20% CIT rate is applied to medium-sized businesses (those with annual revenue between N25 million and N100 million). Small businesses are free from CIT if their yearly revenue is less than N25 million.
In Nigeria, the normal rate of VAT is 7.5%. In an attempt to enhance revenue, the government raised it from 5% in 2020.
These taxes make up a sizable portion of Nigeria’s total revenue base and are essential for financing the nation’s public services and economic growth.
The sector’s CIT contribution has been increasing, but it has not yet reached the peak levels observed in mid-2023, indicating the necessity for further policy changes and initiatives to stabilize the economy.
While the manufacturing sector is rebounding, external pressures like inflation, foreign exchange volatility, and high production costs may still be having an impact on overall profitability, as evidenced by the modest decline in total tax receipts from Q2 2023 to Q2 2024.
According to Dr. Biodun Adedipe, the Chief Consultant of B. Adedipe Associates Limited, Nigerian manufacturers face about 74 distinct levies along their supply chain, from the plant to the market and ultimately to the end user.
In order to increase the nation’s competitiveness abroad, he also took the opportunity to call on the federal government to take action regarding business accessibility.
In an effort to lessen the tax burden on businesses, the Presidential Committee on Fiscal Policy and Tax Reforms, chaired by Taiwo Oyedele, recently announced that the committee has suggested exempting farmers and manufacturers from paying withholding tax.
The various and high rates of taxes and levies imposed by the three levels of government and their agencies were criticized last month by Mr. Segun Ajayi-Kadir, the Director-General of the Manufacturers Association of Nigeria (MAN).
Ajayi-Kadir pointed out that high electricity prices and continuous foreign exchange volatility aggravate the problems the manufacturing sector faces, especially in light of the present macroeconomic environment.
Additionally, he urged manufacturers to back the Presidential Committee on Fiscal Policy and Tax Reforms’ suggestions.
