The Value Added Tax (VAT) revenue in Nigeria has surged significantly, reflecting the combined impact of the naira’s persistent depreciation and the rising cost of living.
This was revealed in a report by CSL Research, which analyzed the recently released VAT report for the third quarter of 2024 by the National Bureau of Statistics (NBS).
According to the NBS data, VAT collections for Q3 2024 rose by 14.16% to ₦1.78 trillion, up from ₦1.56 trillion in Q2 2024.
The breakdown of the figures showed that local VAT payments amounted to ₦922.87 billion, representing a 16.44% increase quarter-on-quarter.
Foreign VAT payments totaled ₦448.85 billion, rising by 13.42% within the same period, while import VAT stood at ₦410.62 billion, marking a 10.10% growth quarter-on-quarter.
On a year-on-year basis, VAT collections soared by a staggering 88%, compared to Q3 2023.
CSL Research highlighted that the sharp increase in VAT collections was driven by a combination of naira depreciation and the sustained high cost of living in the country.
Nigerians have been grappling with surging inflation over the past two years, which has reached a 28-year high.
The inflation crisis is linked to several factors, including soaring food prices, insecurity in agricultural areas, high production costs, supply chain disruptions caused by flooding, and the weakening value of the naira.
“These figures reflect, in part, the impact of currency depreciation and the persistently high cost of living in the country compared to previous quarters,” the analysts said.
The mining and quarrying sector stood out, recording an extraordinary year-on-year growth of 200.96% within the local VAT segment.
Foreign VAT payments increased by 119.40%, while import VAT payments jumped by 85.46%, compared to Q3 2023.
VAT has become a critical source of revenue for the Nigerian government, accounting for 5–8% of federal revenue in recent years.
However, analysts noted that most of the VAT revenue is statutorily allocated to state and local governments, making it a crucial pillar for financing at the subnational level.
Eighty-five percent of VAT revenue is distributed among state and local governments, while the remaining 15% is retained by the federal government.
A key area of discussion has been the proposed VAT distribution formula under the tax reform bill by the Presidential Fiscal Policy and Tax Reforms Committee.
The new bill suggests a 60:20:20 distribution formula among states based on derivation, equality of states, and population.
This proposal contrasts with the current formula of 20:50:30, which many believe favors certain regions over others.
Critics of the reform argue that the proposed formula would significantly reduce VAT allocations to many northern states.
