Decline in Local Firms’ Tax Payments Impact Government Revenue
The recent report from the National Bureau of Statistics (NBS) has unveiled a substantial 36.4 percent decrease in tax revenue from local companies in Nigeria over a period of three months. As per the analysis, tax payments fell to N651.6 billion in the third quarter of 2023 from N1.02 trillion in the previous quarter. This decline is attributed to the reduction in production, resulting in diminished tax revenue for the government.
Sola Obadimu, the director-general of the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture, has indicated that companies are scaling down their production capacity and workforce due to reduced sales. This has consequently impacted the government’s tax revenue as a consequence of the production decline.
Remarkably, the report has also highlighted a substantial increase in payments from foreign companies, surging by 116.9 percent to N1.10 trillion in the third quarter. The growth in revenue from foreign companies has been linked to various factors, including the impact of foreign exchange unification and enhanced technology in tax collection.
The Corporate Income Tax (CIT) report further revealed that the non-oil tax revenue has continued to grow due to the efficiency from technology deployed by the Federal Inland Revenue Service. Additionally, the impact of foreign exchange unification has had a positive influence on the overall tax revenue of the government.
The exorbitant cost of sourcing foreign exchange has also had a ripple effect on Nigeria’s economy, resulting in a significant increase in the inflation rate. The devaluation of the naira against major foreign currencies has contributed to the inflation rate, reaching an 18-year high of 27.33 percent in October.
In terms of sectoral contributions, the information and communication sector, manufacturing, and mining and quarrying were the top three contributors to tax revenue in the third quarter. On the other hand, activities such as undifferentiated goods- and services-producing activities of households for own use recorded the least growth in tax payments.
The fluctuations in tax revenue from local companies and the substantial increase in revenue from foreign companies underscore the necessity for strategic measures to address the challenges faced by local businesses, especially in the current economic climate.
The decline in tax payments from local firms is a concern for the government, as it directly impacts the overall tax revenue. As the government continues to assess the impact of various economic factors on tax collection, there is a pressing need for policies that support local businesses and encourage increased productivity and sustainability.
In conclusion, the recent CIT report from the NBS underscores the importance of addressing the challenges faced by local companies in order to stabilize tax revenue and support economic growth. By implementing strategic measures to support local businesses, the government can work towards fostering a more conducive environment for sustainable growth and development.
