Taxes paid by traders, mechanics rise by 49% in 2024 amid economic challenges

Taxes paid by Nigerians involved in the wholesale and retail trade, as well as the repair of motor vehicles and motorcycles, surged by 49% in the first six months of 2024 compared to the same period last year.

This is according to data from the tax reports of the National Bureau of Statistics (NBS).

Based on the data released by the NBS, this leap in tax revenue is the result of hikes in both Value Added Tax (VAT) and Company Income Tax (CIT) receipts.

CIT, which is pegged at 30%, is levied on the profit of corporations, while VAT — set at a rate of 7.5% — is a consumption tax imposed at the point of sale on goods and services, ultimately shouldered by the end consumer.

What the data says 

• The total tax contribution from the sector in H1 2024 amounted to N185.19 billion, up from N124.39 billion in H1 2023, amid Nigeria’s ongoing economic challenges.

• A closer look at the data shows that VAT collections grew by 50%, increasing from N63.24 billion in H1 2023 to N94.76 billion in H1 2024.

• This rise indicates robust consumer spending, amid the high inflationary environment. Similarly, CIT for the sector jumped by 48%, rising from N61.14 billion in H1 2023 to N90.43 billion in H1 2024.

• This growth in CIT suggests that businesses in the sector remained profitable, even as they grappled with rising operational costs driven by inflation and other macroeconomic headwinds.

• When compared to the second half of 2023, the data shows that total taxes grew by 44% between H2 2023 and H1 2024. In H2 2023, the sector paid a total of N128.68 billion in taxes, with VAT contributing N74.86 billion and CIT accounting for N53.82 billion.

The sequential increase highlights stronger tax collection efforts as well as a steady pace of economic activity, despite inflationary pressures.

The surge in taxes, however, is partly reflective of inflation, which has significantly raised the cost of goods and services, thereby boosting VAT collections.

Businesses, in turn, have faced higher costs for inputs, fuel, and other operational expenses, leading to squeezed profit margins, and higher tax payments.

What you should know 

Nigerians pay over 60 official and 200 unofficial taxes, with small businesses across Nigeria struggling with multiple taxation either from different agencies of the federal government or similar kinds of taxes from different levels of government (federal, state, and local government).

The Chairman, Presidential Committee on Fiscal Policy and Tax Reforms., Mr Taiwo Oyedele, recently said that there are even more unauthorized taxes all disproportionately affecting small businesses including petty traders, hawkers, artisans, truckers, cart pushers, okada riders and other transporters. He said:

The Manufacturers Association of Nigeria (MAN) asked both federal and state authorities to unify the various taxes imposed on its members, citing these levies as detrimental to business expansion.

• In July 2023, the FIRS announced the VAT Direct Initiative, a scheme that would enable the federal government to collect VAT from the informal sector.
• This scheme was introduced in an effort to curb the issue of multiple taxation that has plagued the informal economy.
• Clarifying further, Oyedele, stated that market traders under the VAT Direct Initiative will have exemptions if their business does a turnover of less than N25 million.
• He added that the FIRS was leveraging the federal might to ward off tax collections by non-state actors and stop them from extortion and pay VAT where applicable.
• In December 2023, the FIRS introduced the Integrated Market Revenue Management System (IMRMS), a digital platform designed to integrate the informal sector, particularly market traders, into the federal government’s tax framework.
• This move aligns with the VAT Direct Initiative (VDI) aimed at promoting VAT collection and remittance awareness in the informal sector.

So far, the Federal Government plans to cut down official taxes to not more than 10 and has recommended that state and local governments across the country suspend “nuisance taxes” that don’t add value to the state’s coffers.

New tax regulations have been introduced to amend existing laws and curb multiple taxation frustrating business owners in the country.

Taxes paid by traders, mechanics rise by 49% in 2024 amid economic challenges - Nairametrics