Nigeria witness a significant increase in tax earnings from Foreign firms, with figures nearly doubling in the span of one year.
This significant fiscal boost is likely due to the weakening of the naira, which has increased the local currency’s value of foreign transactions for non-import (foreign) Value Added Tax (VAT) and Foreign Company Income Tax (CIT) payments.
According to the National Bureau of Statistics (NBS) for 2023, it indicates that Nigeria’s revenue from foreign-related Value Added Tax (VAT) rose by 61%, with figures reaching N824.6 billion, a significant increase from N510.8 billion in 2022. Corporate Income Tax (CIT) from foreign entities, has seen a 107% increase, climbing from N1.14 trillion in 2022 to N2.38 trillion in 2023.
The total tax revenue from these streams rose by 93%, from N1.66 trillion in 2022 to N3.21 trillion in 2023. While the increase in tax revenue is a welcome development for the country’s finances, it also highlights the Nigerian economy’s exposure to exchange rate risks.
The current boost in tax earnings is significantly propelled by the naira’s weakness, which, while beneficial in the short term, may mask underlying vulnerabilities in the economic framework.
Nigeria’s Company Income Tax (CIT) collections surged by 73.14% in 2023, amassing a total of N4.9 trillion. This remarkable growth underscores the significant contribution of foreign firms to the Nigerian economy, with nearly half of this figure, precisely 49%, being attributed to foreign CIT.
On the other hand, the Value Added Tax (VAT) collections painted a slightly different picture. While still noteworthy, the impact of foreign firms on VAT was less pronounced than in the CIT sector. Foreign entities contributed 23% to the total VAT collections, which stood at N3.64 trillion for 2023.
This financial landscape highlights the critical role that international businesses play in bolstering Nigeria’s tax revenue, especially in the CIT domain.
