In the just concluded week, data released from the National Bureau of Statistics (NBS) showed that revenue from both the Company Income Tax (CIT) and the Value Added Tax (VAT) rose by 9.61% year on year to N2.94 trillion in 2020 as against N2.68 trillion printed in 2019 despite COVID-19 pandemic.
A significant portion of the tax revenue came from the Telecoms sector as N289.80 billion (accounting for 11.65% of the total CIT and VAT revenue) was collected in 2020.
Collected tax amounts from sectors such as Commercial and Trading, Banking and Financial Institutions, as well as Breweries, Bottling and Beverages sectors were N145.98 billion (accounting for 4.96%), N121.17 billion (accounting for 4.12%) and N112.84 billion (accounting for 3.84%) respectively.
Further breakdown showed that revenue from CIT stood at N1.41 trillion in 2020, declining by 5.92% from N1.50 trillion recorded in 2019. For VAT, the total amount collected rose y-o-y by 29.26% to N1.53 trillion in 2020, from N1.18 trillion printed in 2019.
In another development, the Monetary Policy Committee (MPC), having concluded its 277th meeting on Tuesday, January 26, 2021, decided to put on hold all key monetary policy parameters. Specifically, MPR was held at 11.50% to in coherence with the fiscal authority’s goal to quicken the pace of economic recovery out of recession.
The asymmetric band was retained at +100 bps and – 700 bps around MPR while the Cash Reserve Ratio (CRR) and Liquidity Ratio were also retained at 27.50% and 30% respectively.
The Committee was of the view that the moderation in output contraction in 3Q 2020 associated with the news of the discovery of COVID-19 vaccines and rising crude oil prices reflect the good economic outlook for the oil-rich country; albeit, it feared that the good fortunes may be dampened by the second wave of COVID-19 pandemic.
The MPC noted the high inflation in emerging markets and developing economies amid weak accretion to reserves, exchange rate pressures, the poor inflow of capital and long-standing structural issues.
Also, it pointed out the steady build-up of systemic liquidity across the global economy, arising from the supports from the fiscal and monetary authorities to bolster the economy and return confidence to the financial markets.
Nevertheless, the MPC was optimistic on the direction of the inflation rate going forward. It stated that the inflation rate should moderate as output rebounds.
On the foreign scene, the West Texas Intermediate (WTI) crude price fell further by 1.49% w-o-w to USD52.34 a barrel gave the 0.26% w-o-w fall in US crude oil input to refineries to 14.72 mb/d as at January 22, 2021 (also, It declined y-o-y by 7.55% from 15.92 mb/d as at January 24, 2020).
Similarly, Brent crude decreased by 1.78% to USD55.10 a barrel even as we saw Nigeria’s crude grade (Bonny Light) price moderate by 1.56% to USD54.41 a barrel as at Thursday, January 28, 2020.
The crude oil benchmarks tanked despite the 2.04% w-o-w decline in U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) to 476.65 million barrels as at January 21, 2021 (albeit, inventories rose by 10.42% y-o-y from 431.65 million barrels as at January 21, 2020).
We note that the rise in non-oil revenue (CIT and VAT) was chiefly on the implementation of 50% increase in the VAT rate to 7.50% by the fiscal authority; hence, translating to higher VAT amount in 2020. However, revenue from CIT fell, reflecting the negative impact of COVID-19 pandemic on companies – even as the economy went into recession.
Thus, we expect revenue from corporate tax to rise going forward, as the economy rebounds.
Meanwhile, efforts by CBN to support output growth via its expansionary policies may be countered by rising inflation and depreciation of the local currency, and this may negatively impact profits of corporates.