The Nigerian government reported a Value Added Tax (VAT) revenue of N1.78 trillion for the third quarter of 2024, marking a significant achievement in its revenue generation efforts.
This figure, disclosed in the latest VAT report by the National Bureau of Statistics (NBS), represents a 14.16% increase from the N1.56 trillion collected in the previous quarter and an impressive 88% growth compared to the same period in 2023.
The Breakdown of VAT Revenue Sources and Sectoral Contributions
The revenue generated in Q3 2024 was driven by three primary streams: local VAT payments, foreign VAT payments, and import VAT collections. Local VAT payments contributed the highest share, followed by foreign and import VAT, reflecting the diverse economic activities taxed across the country.
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The N1.78 trillion VAT revenue was driven by contributions from three key streams:
- Local VAT Payments: N922.87 billion
- Foreign VAT Payments: N448.85 billion
- Import VAT: N410.62 billion
The manufacturing sector emerged as the largest contributor to the VAT pool, accounting for a significant portion of the total revenue. This was followed closely by the information and communication sector, as well as mining and quarrying activities. At the other end of the spectrum, activities of households as employers, extraterritorial organizations, and water supply and waste management recorded the lowest contributions.
While some sectors demonstrated remarkable growth, such as human health and social work activities, which saw a quarter-on-quarter growth rate of 250.39%, others experienced sharp declines. Water supply and waste management, for instance, suffered a steep drop of 41.92%, reflecting disparities in the growth and contraction of various industries within the economy.
In terms of contributions to the overall VAT pool, the top-performing sectors in Q3 2024 were:
- Manufacturing: 22.21%
- Information and Communication: 20.89%
- Mining and Quarrying Activities: 18.90%
The Debate Over Tax Reforms Bills
The increase in VAT revenue coincides with a heated debate over how these funds should be allocated between the federal and state governments. Currently, VAT revenues are distributed based on a formula that grants 15% to the federal government, 50% to the states, and 35% to local governments. Additionally, 4% of collections are allocated to the Federal Inland Revenue Service (FIRS) as a collection fee, while the Nigeria Customs Service receives 2% for import VAT collections.
A proposed reform to adopt a derivation-based model, which would allocate VAT revenues based on where they are generated, has sparked controversy. Northern states, supported by their governors and traditional rulers, have opposed the move, arguing that it would disproportionately favor economically vibrant Southern states. Proponents of the reform, however, contend that it would incentivize states to enhance their economic productivity and reduce dependence on federal allocations.
Public Sentiment: It’s Not About Paying Taxes, But How They’re Used
This substantial rise in VAT collections highlights the government’s success in expanding its tax base and strengthening compliance mechanisms. However, the achievement comes along with growing public frustration over the perceived mismanagement of tax revenues, as Nigerians increasingly demand transparency and accountability in the use of public funds.
Nigerians, by and large, do not oppose paying taxes. Many recognize the necessity of taxation as a means to fund critical public services, infrastructure, and national development. However, the real issue lies in the judicious use of taxpayers’ money, which remains a contentious topic.
The recurring narrative of corruption, embezzlement, and financial mismanagement has eroded public trust in the government’s ability to use tax revenues responsibly. Over the years, high-profile corruption scandals have emerged, implicating government officials in the diversion of funds meant for healthcare, education, and infrastructure projects. From inflated contracts to outright diversion of funds, the misuse of tax revenues has created a vicious cycle of distrust, non-compliance, and inefficiency.
This pervasive corruption has created a disconnect between citizens and the government, with many questioning why they should continue to pay taxes when basic amenities remain inaccessible or underfunded.
The lack of visible impact from tax revenues has left many Nigerians skeptical about the government’s fiscal priorities.
This mistrust is further compounded by Nigeria’s rising public debt, which has reached an alarming N142 trillion. Despite the increased tax revenues, the government’s reliance on borrowing has not abated, raising questions about where these funds are being channeled and whether they are effectively addressing the nation’s pressing challenges.