According to the National Bureau of Statistics (NBS), aggregate Value Added Tax (VAT) for Q3 2024 was reported at ₦1.78 trillion, a growth of 14.16% from ₦1.56 trillion in Q2 2024. Breakdown of the Q3 figures shows that local VAT payments amounted to ₦922.87 billion, a 16.44% q/q growth. Foreign VAT payments totalled ₦448.85 billion, rising by 13.42% q/q, while import VAT contributed ₦410.62 billion, showing a 10.10% q/q growth.
On a y/y basis, VAT collections in Q3 2024 surged by 88.00% compared to Q3 2023. The most significant y/y increases were recorded in foreign VAT payments (+119.40%) and import VAT payments (+85.46%). Within the local VAT segment, mining and quarrying experienced an exceptional growth of +200.96% y/y. These figures reflect, in part, the impact of currency depreciation and the persistently high cost of living in the country compared to previous quarters.
VAT serves as a critical source of government revenue in Nigeria. In recent years, it has accounted for approximately 5–8% of total federal government revenue. Notably, 85% of VAT revenue is allocated to state and local governments, making it a key pillar of subnational financing. The remaining 15% is retained by the Federal Government. Based on sectoral classifications, the top three contributors to total VAT revenue in Q3 2024 remained consistent with the previous two quarters. Manufacturing led with 11.50% (₦204.95 billion), followed by information and communication at 10.82% (₦192.83 billion), and mining and quarrying at 9.79% (₦174.42 billion).
The tax reform bill proposed by the Presidential Fiscal Policy and Tax Reforms Committee has encountered resistance in the Nigerian Senate, with members divided over its VAT distribution formula. The new bill suggests a 60%:20%:20% allocation formula among states, based on derivation, equality of states, and population, respectively. This contrasts with the current formula of 20%:50%:30%. Contrary to widespread concerns that the proposed changes would significantly reduce allocations to many northern states, we believe the impact may be less severe than anticipated. Two key factors support this view:
1. The proposed reduction of the Federal government’s VAT share from 15% to 10% would leave a larger pool of VAT revenue for distribution among the states.
2. Shifting from the current system—where VAT is attributed to the states where payments are made—to one that credits states based on where consumption occurs would ultimately increase the VAT revenue retained by states.
Source: CSL Research
