Electricity supply and mining taxes generated N42 billion in the fourth quarter of 2022 for the Federal Government of Nigeria. This is according to data contained in the recently released Q4 2022 Value Added Tax report by the National Bureau of Statistics (NBS).

The report stated that the value-added tax for electricity, gas, steam, and air-conditioning supply as of Q4 2022 was  N3,323,664,818.81. Also, value added tax for mining and quarrying for Q4 2022 was  N39,340,004,172.20, making up N42 billion for energy-related taxes in Q4 2022.

Compared to previous quarters: The value-added tax for electricity, gas, steam and air conditioning supply in Q3 2022 was  N3,707,535,482.08. In Q2 2022, the VAT for the same was  N3,966,534,208.95, while in Q1 2022, the VAT for the same was  N1,832,331,304.24.

Meanwhile, the value-added tax for mining and quarrying activities in Q3 2022 was  N40,287,179,465.24. In Q2 2022 the VAT for the same was  N38,083,274,044.71. In Q1 2022, the VAT for the same was  N40,780,096,030.85.

Although energy-related VAT payments as highlighted above were over N40 billion, they were not the sectors with the highest VAT payments. The NBS report stated that in terms of sectoral contributions, the top three largest shares in Q4 2022 were Manufacturing with 32.17%; Information and communication with 18.05%; and Public administration and defence, compulsory social security with 9.87%.

On the other hand, the activities of households as employers, undifferentiated goods- and services-producing activities of households for own use recorded the least share with 0.01%, followed by activities of extraterritorial organizations and bodies with 0.05%; and Water supply, sewerage, waste management, and remediation activities with  0.07%.

Nigeria’s tax dilemma: In its public finance review report of November 2022, the World Bank notes that VAT revenues account for the bulk of forgone revenues, which is largely due to a significant compliance gap. The World Bank provided a scenario with the 2020 VAT collection. It said that if all commodities in the VAT system were fully taxable in 2020, Nigeria could have generated about N6 trillion from the existing tax structure. This compares to only N1.8 trillion collected in 2020.

Thus, the estimated VAT revenue foregone was N4.3 trillion, of which 21% results from exemptions set out in the legislation, while the remaining 79% corresponds to the compliance gap. The large compliance gap could reflect difficulties in bringing the informal sector and underground economic activity into the VAT value chain, as well as wider problems in tax administration.

What you should know: According to the NBS, the aggregate Value Added Tax (VAT) for Q4 2022 was reported at  N697.38 billion, showing a growth rate of 11.51% on a quarter-on-quarter basis from  N625.39 billion in Q3 2022. However, On a year-on-year basis, VAT collections in Q4 2022 increased by 23.71% from Q4 2021.