Government Anticipates N593 Billion Windfall from 2024 VAT Collection

The federal government has outlined an ambitious target, aiming to generate approximately N593.1 billion in 2024 through Value Added Tax (VAT) collection, as indicated in the revenue projection of the 2024 appropriation bill submitted to the Senate.

Within the comprehensive revenue outlook for 2024, the federal government anticipates a total revenue of N12.7 trillion. The primary component of this revenue is the main pool of federation revenue, amounting to N12.1 trillion, with an additional targeted revenue of N593.1 billion specifically from Value Added Tax (VAT).

Value Added Taxes (VATs) are consumption-based levies imposed on goods and services. In a notable move, the federal government raised the VAT rate from 5% to 7.5% in February 2020, seeking to bolster revenue streams.

Examining recent VAT revenues, the federation recorded a notable upswing in 2022, with VAT collections reaching N2.51 trillion, marking a substantial 21.2% increase from the N2.17 trillion reported in 2021. Out of this total, the federal government garnered N375 billion, representing the stipulated 15% share allocated to the federal government from VAT collections.

The surge in VAT revenue in recent years can be attributed to the adjustment in the VAT rate from 5% to 7.5% in 2020. This policy change resulted in a doubling of the country’s VAT collection, culminating in a record high of N2.51 trillion in 2022.

In the initial half of 2023, Nigeria continued its robust VAT collection, recording approximately N1.49 trillion, according to data from the National Bureau of Statistics (NBS). The second half of 2023 witnessed a 10% increase in VAT collection compared to the previous quarter.

It is essential to note that Nigeria has been actively pursuing strategies to enhance revenue collection in the non-oil sector, aiming to finance capital projects and diminish reliance on debt. The current tax-to-GDP ratio in Nigeria stands at 10.8%, significantly below the averages observed in Sub-Saharan Africa and the World Bank’s recommended threshold of 18%.

In response to these challenges, the administration of President Bola Tinubu has established the Presidential Committee on Fiscal Policy and Tax Reforms. This committee is tasked with addressing impediments in the nation’s tax policy, with a specific focus on elevating the tax-to-GDP ratio and implementing reforms to fortify fiscal policies. In essence, these initiatives align with the broader objective of achieving sustainable economic growth and reducing dependence on oil revenues.