By CSL Stockbrokers
The National Bureau of Statistics (NBS) published data on the revenue generated from Value Added Tax (VAT) collections in Q2 2022.
The total VAT collected in Q2 2022 was N600.2bn, an improvement of 17.2% y/y and 2.0% q/q compared to N512.3.3bn in Q2 2021 and N588.6bn in Q1 2022. Apart from the continued recovery in consumer spending, the increased VAT revenue in Q2 2022 can be attributed to the effect of inflation on 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.
Further analysis of the data provided insight into the level of contribution to VAT revenue in Q2 2022. As noted earlier, VAT collections grew by 17.2% 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 91.6% y/y and 10.9% 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. The 2.0% q/q growth of in VAT revenue was also driven by VAT on locally produced goods (i.e., non-import VAT) which increased by 4.4% q/q, further supported by a 2.6% q/q growth in Nigerian Custom Service (NCS)-Import VAT.
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 were Accommodation & Food Service Activities (+42.4% q/q), Information & Communication (+15.9% q/q), Manufacturing (+5.2% q/q) and Public Administration & Defence, Compulsory Social Security (+28.2% q/q) sectors.
Given expectations of continued inflationary pressures, we expect VAT revenue to continue to grow. As of April 2022, net revenue from VAT collections accruable to all three tiers of the government had achieved 95.2% of its prorated target.
Hence, similar to the narrative in 2021, we believe the non-oil revenue in 2022 arising from both VAT and CIT collections will likely outperform 2022 budget estimates, which is good for the country, especially at a time when high subsidy payments and low oil production has been keeping revenue low.