Total taxes on products in the economy rose by 112.02 per cent from N1.43tn in 2019 to N3.03tn in 2022, coinciding with a Value Added Tax hike from five per cent in 2020 to 7.5 per cent in 2022.
This was contained in the National Bureau of Statistics’ ‘Nigerian Gross Domestic Product Report (Expenditure and Income Approach)’ for the years under review.
The NBS defines net taxes on products as the “total taxes payable on products, minus any subsidies received for the product.”
Prior to the implementation of the new VAT regime, net taxes on products totalled N1.43tn in 2019. By 2020 (when the new VAT regime began), taxes rose by 34.97 per cent to 1.93tn in 2020. It rose by another 32.13 per cent to N2.55tn in 2021 and rose by 18.88 per cent to N3.03tn in 2022.
Commenting on the growth of net taxes on products, the NBS said, “On a year-on-year basis, Net Taxes on Products grew in real terms by 10.30 per cent in Q3 of 2022, and 11.18 per cent in Q4 of 2022 compared to 6.22 per cent and 67.99 per cent in Q3, and Q4 of 2021.”
It added. “On an annual basis, 2022 grew by 14.19 per cent, lower than 25.81 per cent in 2021. In nominal terms, the growth rate of Net Taxes on Products was 24.95 per cent in Q3 of 2022, and 23.71 per cent in Q4 of 2022.”
The slow growth in taxes in 2022 could be linked to rising inflation and a challenging economic condition affecting purchasing power in the country.
The NBS said, “Growth becomes negative in Q2 to Q4 2022 due to rising prices and challenging economic conditions. In Q3 and Q4 of 2022, growth rates were -5.83 per cent and -12.47 per cent, showing lower rates relative to the corresponding quarters of 2021.”
In February 2020, the Federal Government began the implementation of 7.5 per cent in a bid to achieve its revenue projections. Since then, VAT revenues have risen by 108.33 per cent from N1.2tn as of 2019 to N2.5tn as of 2022.
Despite increases in VAT revenues, there has been a new push for increases in the country’s VAT rate. According to the former Minister of Finance, Zainab Ahmed, the incoming government should increase VAT rates from 7.5 per cent to 10 per cent.
She said, “VAT is one of the ways to increase revenue and we still have to increase VAT because, at 7.5 per cent, Nigeria has the lowest VAT rate in the world, not in Africa, in the world.”
She added, “So, tax compliance has increased. As a result, we have also adjusted our VAT rate from five per cent to 7.5, even though our target was 10 per cent. But you know how it is in Nigeria, we are targeting 10 per cent by the second year, we did so to increase revenue.”