In the initial quarter of 2024, Tax revenues from Nigerian manufacturers hit a three-year low, mainly because the challenging business conditions negatively affected their financial results. In Q1 of this year, the National Bureau of Statistics (NBS) reported a 70.4% decrease in Tax Revenue from local and foreign Manufacturing companies in Africa’s most populous country. The total Revenue dropped from ₦145.1 billion to ₦43.2 billion compared to the same period last year. The decrease was also 31.4 percent compared to the previous year, dropping from ₦62.9 billion.
Major manufacturers in the country faced significant financial losses in one year due to increased borrowing expenses resulting from higher interest rates and a continued Devaluation of the naira. Abiodun Kayode-Alli, a tax senior manager at PwC, stated that manufacturers are struggling due to the expensive production costs. The economy’s condition has influenced their tax contributions to the government. Manufacturers are subject to high tax payments. He mentioned that due to the challenging business conditions, collections in Q1 are typically low as companies are given until June 30 to finalize their filing and payments.
Tax rate varies depending on the company’s annual revenue.
Therefore, they are delaying their payments until then. Corporate Income Tax (CIT) is a tax charged by the government on a company’s earnings. The tax rate varies depending on the company’s annual revenue: 0% for companies making less than ₦25 million, 20% for companies making between ₦25 million and ₦100 million, and 30% for large companies earning over ₦100 million. Analysis of the NBS report showed that the manufacturing sector, previously a top tax revenue generator, experienced the slowest growth among 21 sectors.
This decline led to a 12.9 percent drop in overall CIT, falling from ₦1.13 trillion to ₦984.61 billion in Q1. In Q1, the Federal Inland Revenue Service reported an income of ₦3.94 trillion from taxes, which was below the anticipated target of ₦4.8 trillion for the quarter. According to Muda Yusuf, the chief officer of the CPPE, large corporations and multinational companies are the primary contributors to the corporate tax. However, numerous of these entities experienced significant financial setbacks due to the changes in foreign exchange policies.
Foreign exchange losses led to high finance costs for consumer companies.
He mentioned that many individuals in the production sector have not been benefiting from the economy, despite their significant contributions to tax revenue. According to report, a majority of 13 consumer goods companies listed incurred a total loss of ₦388.6 billion in the first quarter. Increased foreign exchange losses and rising interest rates resulted in elevated Finance costs for many consumer companies, noted Lagos-based investor relations analyst Ayorinde Akinloye. He mentioned that even though a few of them were performing well operationally, their profits decreased, and some experienced significant financial losses.
Thus, in an effort to combat Inflation and support the struggling naira, the Central Bank of Nigeria increased its Monetary Policy rate for the third consecutive time in May, raising it by 150 basis points to 26.25 percent. Including this latest hike, there has been a total increase of 750 basis points since February. In addition to the increase in the MPR, the decision to liberalize the foreign exchange system in June caused the Naira to lose almost 30 percent of its value in the current year. On June 9, 2023, the exchange rate stood at ₦463.38/$ before rising sharply to ₦1,473.7/$ by June 11, 2024. Meanwhile, the naira’s value plummeted at the parallel market, dropping from 762/$ to ₦1,500/$.
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Nigeria’s difficult conditions for businesses have led to the departure of several multinational companies from the country. A total of six companies, including Kimberley-Clark and Procter & Gamble, have left Nigeria within a span of 10 months. Femi Egbesola, the national president of the Association of Small Business Owners of Nigeria, stated that a large number of businesses currently operating are struggling and experiencing financial difficulties, with many facing the possibility of closure due to a lack of effective planning. Egbesola estimated that approximately 10 million businesses have already ceased operations.