The National Bureau of Statistics (NBS) published data on the revenue generated from Value Added Tax (VAT) collections in Q1 2022. The total VAT collected in Q1 2022 was N588.6bn, an improvement of 18.6% y/y and 4.4% q/q compared to N496.3bn in Q1 2021 and N563.7bn in Q4 2021.

Apart from the continued recovery in consumer spending, the increased VAT revenue in Q1 2022 can be attributed to the effect of inflation on the prices of goods and services. Since VAT is deducted by applying VAT rate on the value of transactions, an increase in prices of goods and services will necessarily imply growth in VAT collections (+18.6% y/y).

Further analysis of the data provided insight into the level of contribution to VAT revenue in Q1 2022. As noted earlier, VAT collections grew by 18.6% y/y, largely driven by VAT on locally produced goods (i.e., non-import VAT) alongside Nigerian Custom Service (NCS)- Import VAT which increased by 53.0% y/y and 26.7% y/y, respectively.

The y/y growth in VAT on locally produced goods reflects the continued recovery in consumption, post the
peak of the pandemic in 2020 and the persistent inflationary pressures. On the other hand, the q/q growth of 4.4% in VAT revenue was driven by Non-Import (foreign) VAT which increased by 14.0% q/q, further supported by a 3.2% q/q growth in VAT on locally produced goods. Notably, while the q/q growth in VAT on locally produced goods is not broad-based, the sectors that contributed most to the q/q increase are Education (+18.0% q/q),
Manufacturing (+9.8% q/q) and Mining & Quarrying (+23.5% q/q) sectors.

Like the improvement in CIT collections (+35.6% y/y), growth in VAT revenue (+18.6% y/y) at the start of the year is quite promising. Given the expectations of continued inflationary pressures, we expect VAT revenue to continue to grow amid the expected consumer spending during election period.

Hence, just like we saw in 2021, we believe the non-oil revenue in 2022 arising from VAT and CIT collections will likely outperform 2022 budget estimates, which is considered helpful, especially at a time when high subsidy payments and low oil production keep throwing a spanner in the works of oil revenue. As of November 2021, the actual VAT revenue of N360.5bn outperformed the 2021 budgeted revenue by 1.5x.

CSL Stockbrokers Limited, Lagos (CSLS) is a wholly owned subsidiary of FCMB Group Plc and is regulated by the Securities and Exchange Commission, Nigeria. CSLS is a member of the Nigerian Stock Exchange

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