Countries all over the world require funds to run, manage, and administer different areas. A country can only provide services and deliver dividends to the level of funds and resources available at its disposal.
The strength of a country’s revenue goes a long way in bringing about infrastructural development, structuring and restructuring, worker and citizen welfare, and the general provision of services. One way the government raises money is through VAT (value-added tax).
The FIRS defines VAT as a consumption tax paid when goods are purchased and services rendered. VAT is added to the price of goods and services and is borne by the final consumer. VAT is charged indirectly on the amount the final consumer pays.
In reality, we pay VAT on most things we purchase, but many people are unaware of this, as this charge is added to the final charge or cost. In Nigeria, under the Finance Act of 2019, VAT is currently charged at 7.5% on every taxable item bought or service rendered. Certain goods are exempt from VAT charges; they include:
- Basic food items
- Baby products
- All exports
- All medical and pharmaceutical products
- Educational books and materials.
Sources of VAT
According to data obtained from the Nigerian Bureau of Statistics, a total of N2.43 trillion was realized from VAT in the first three quarters of 2023. Out of the total amount realized, N1.47 trillion was from local non-imports.
Local non-imports refer to goods and services that are bought or rendered within the country, excluding imported goods or services received from outside the country. They include VAT from education, construction, manufacturing, e.t.c. The local non-imports make up 60.3% of the total amount realized from VAT.
Foreign non-import VAT raked in N498.33 billion (N598.00 million), which is 20.4% of the total amount of VAT generated. Foreign non-import VAT is a tax charged on services received from outside the country.
Depending on the service received, people pay VAT on services received from international sources. NCS imports (Nigerian Customs Service) generated N470.47 billion (564.56 million) in total, which is 19.3% of the total VAT generated for the first three quarters of 2023.
Quarterly Analysis
Amount of VAT generated by quarter (in billion naira)
In the first quarter of 2023, the least quarterly amount of VAT was generated. In all, N709.59 billion (USD 851.51 million) was realized. Transactions in the first quarter of the year are usually lower compared to other quarters of the year.
Transactions, purchases, and provision of services are usually lower than in other quarters; lower transactions and general services spell lower VAT generated.
The second quarter of 2023 recorded a 10.1% increase from the first quarter, as N781.35 billion (USD 937.62 million) was realized in total. In the third quarter, there was a 21% increase from the second quarter of 2023. N948.07 billion (USD 1.14 billion) was realized in the third quarter.
Looking at the chart below, there is a significant increase in VAT realized from 2021 to 2023 (3 years). The amount of VAT generated in the first three quarters of 2023 is higher than the combined amount generated in the whole of 2021 and just N71 billion less than the amount generated in 2022. The total VAT realized in 2023 will be the highest for the three years,2021–2023.
Top 10 Non-import local VAT
Top 10 Non-import local vat (in billion naira)
The manufacturing sector in Nigeria generated the highest amount of VAT for the first three quarters of 2023. They generated 419.49 billion (USD 503.4 million) in total and account for 17.19% of the total amount of VAT generated. With the presence of a high number of manufacturing companies in Nigeria, it is not surprising that a lot of VAT is generated from this sector.
Information and communication come next, with N292.02 billion (USD 350.4 million and 12% of total VAT generated) generated in VAT. The information and communication sector is a major player in the Nigerian economic space, providing a lot of services and value. VAT generated from mining and quarrying comes in third with N165.14 billion (USD 198.17 million).
From the VAT generated from the first 3 quarters of 2023 alone, it is clear that the amount that would be generated at the end of the year will be greater than what was generated in 2021 and 2022.
Also, VAT has consistently increased from 2021 to 2023. This trend can be used to forecast future values for subsequent years. Forecasting is used in planning and preparing ahead of time. Economists use data such as this to set up models that are used to achieve certain financial goals and deliverables.
