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Nigeria: Govt Records 17.3% Shortfall in Companies’ Income Tax

Against the backdrop of pressures on the Federal Government’s finances and 2020 budget revenue estimates, an indication has emerged that the government may have already recorded a shortfall of 17.3 per cent in the Company Income Tax, CIT, as at third quarter of 2020, Q3’20.

Also economy analysts say the sustained macroeconomic headwinds would likely affect the projected CIT in the fourth quarter, Q4’20.

The Federal Government had, in the budget 2020, projected to generate N1.798 trillion in the full year and N1.348 trillion by Q3’20 from the CIT. But a data from National Bureau of Statistics, NBS, obtained by Financial Vanguard show that actual CIT revenue realised for the period under review was N1.113 trillion, about N235 billion or 17.4 per cent shortfall from the 2020 budget target.

Economists and financial analysts have opined that the shortfall in income tax revenue is not unexpected in view of the global Coronavirus, COVID-19, which led to a nationwide lockdown and also a huge drop in oil price and oil revenue.

They, however, commended the listed companies for their resilience despite the economic headwinds while calling on government to provide necessary incentives to attract more companies to be listed on the Exchange.

Meanwhile, the Minister of Finance, Budget and National Planning Mrs Zainab Ahmed, had disclosed that the new Finance Bill would require only companies doing a turnover of over N100 million to pay 30 per cent CIT while companies with turnover of between N25 million and N100 million annually will pay 20 per cent.

“Our assessment is that any business that has a turnover of less than N25million needs that break, not being taxed so they can invest in their businesses. And we reduced the tax for medium-size businesses from 30 per cent to 20 per cent so they can have more resources that they can plough back in their business. These are the largest employers of labour. The federal and state governments have a total labour force of less than one per cent of the population,” Ahmed added.

Financial Vanguard analysis show that top 95 companies listed on the NSE in various sectors captured recorded N271.678 billion, thus accounted for 24.3 per cent of the actual revenue of N1.113 trillion from the companies’ income tax for the period under review.

Firm’s CIT

A review of the CIT from the companies listed on the Exchange shows that MTN Nigeria Plc led the list of top payers with N67.356 billion. It was trailed by Dangote Cement Plc recording N63.275 billion. GTBank occupied third position recording N25.068billion followed by Zenith Bank Plc recording N17.968billion and Access Bank Plc posting N 14.322billion.

Experts’ perspectives

Reacting to the shortfall in company income tax, Uche Uwaleke, a Financial Economist and Professor of Capital Market at the Nasarawa State University said: ” One doesn’t need to look far to see the cause of the shortfall in the CIT collection. COVID’19 is to be blamed with supply chains disruptions and lockdowns that accompanied it which negatively affected most companies’ revenue and bottom lines.

“Don’t forget also that the Collecting Agency, the Federal Inland Revenue Authority, FIRS, as part of COVID’19 response measures, granted extensions to companies with respect to filing tax returns.

“That companies listed on the Stock Exchange made a significant contribution to the tax revenue pool is no surprise. Listing ensures transparency and demands adequate reporting and full disclosure. Tax evasion is made difficult following listing on the Exchange and so, it is in the interest of the government that more companies get listed. The government can facilitate this by granting fiscal incentives to companies willing to be listed on the Exchange.”

Commenting as well, Mr Victor Chiazor, Analyst and Head of Investment at Fidelity Securities Limited, said: “The tax revenue projection by the government for 2020 was quite ambitious despite the fact that the country had a lot of companies outside the tax net.

“Its half year tax shortfall of N227 billion was much better than we projected as we expected a much higher shortfall owing to the economic lockdown and relatively slow economic activity triggered by the pandemic during the period in question.

“The fact that 63 companies on the NSE accounted for 30.4 per cent of the generated income tax shows that it is easier for the government to get its tax revenue from companies that are visible like those listed on the NSE and it needs to create more incentives like tax cuts and other waivers to attract other big firms to the Exchange in a bid to make its job of tax collection easy.”

In his projection for the year, Chiazor said: “Going into the full year, we do not expect the government to be able to achieve a 100 per cent in terms of its budgeted tax revenue for the period, but expect it to achieve a revenue collection of about 77 per cent amounting to N1.38 trillion for the full year.”

In his own comment, Mr David Adonri, Chartered Stock Broker and Executive Vice Chairman, HighCAP Securities Limited said: “Under-collection of company income tax by N227billion in first half, H1’20 against budget target is not surprising.

“Disruptions of Covid19 during H1’20, caused the deviation. It is a serious dent on the fiscal economy. It has sent government into excessive borrowing and deficit finance. Several projects and obligations have become underfunded.

“The contribution of companies listed on the NSE is interesting to note but it ought to be higher if the NSE is to serve as barometer for the economy. The effectiveness and ease of company tax collection will be enhanced if more companies are listed on the NSE because of the high levels of transparency and integrity of their disclosures. “Government can compel several companies which occupy commanding heights of the economy to list, so as to drive compliance with tax laws.”

Commenting on the government’s projection for the full year, Adonri said: “It is a herculean task for government to achieve the 2020 budget CIT target of N1.79trillion due to current socioeconomic situation. Covid19 is still raging, stagflation is at hand and insecurity remains at catastrophic level. Fiscal austerity and re-channeling of expenditure to critical sectors are the most sensible options for macroeconomic stability now.”

Reacting as well, Mr Sola Oni, Chartered Stockbroker and Chief Executive Officer, Sofunix Investment and Communications said: “A company’s income tax is a function of profitability. It is obvious that companies’ earnings will be reduced by the impacts of Covid-19 pandemic on business activities. Therefore, the shortfall of N227 billion in companies’ income tax of first half of 2020 is not unexpected.

“It is significant that 63 quoted companies accounted for 30.4 percent generated income tax by the government. This symbolizes one of the benefits of listing companies on the Nigerian Stock Exchange. A quoted company cannot evade tax as it must perform its corporate responsibilities and there is nowhere to hide.

“Government can attract quotable companies to the market through incentives such as granting of tax holiday and patronage of the company’s products and services.”

While reacting to government meeting its revenue projection for 2020, Oni said: “It is doubtful that government can achieve the target for tax going by the current inclement operating environment and its attendant effects on corporate earnings and Gross Domestic Product (GDP). “More so, virtually all performance indicators have been downgraded by renowned rating agencies, World Bank, International Monetary Fund (IMF) and other financial institutions.”

Vanguard News Nigeria