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FG’s revenue drive suffers setback as company tax hits 3-year low



Mounting debt service amidst revenue crisis raises sustainability concerns

Vital statistics emanating from the real sector of the Nigerian economy suggest that recent policies aimed at increasing the revenues of the Federal Government are triggering a high cost of production that has either drastically reduced the profitability of businesses or taken them to the loss region.

This is not in alignment with the plan of President Bola Tinubu to achieve an 18 per cent tax-to-GDP (tax to gross domestic product) ratio within three years, through the Presidential Committee on Fiscal Policy and Tax Reforms headed by Mr. Taiwo Oyedele.

Inaugurating the committee last year, the President said the aim was to transform the tax system to support sustainable development and achieve a minimum of 18% tax-to-GDP ratio within the next three years without stifling investment or economic growth.

However, according to the latest Company Income Tax (CIT) report by the National Bureau of Statistics (NBS), tax payments from manufacturers in Nigeria dropped to the lowest in three years in the first quarter of 2024 largely due to the tough operating environment, which impacted their financial performance.

The report revealed that tax revenue from both local and foreign manufacturing firms in Africa’s largest economy fell by 70.4 per cent to N43.2 billion in Q1 from N145.1 billion in the same period of last year. It also declined year-on-year by 31.4 per cent from N62.9 billion.

Africa’s leading oil producer had embarked on its boldest reform agenda in decades, including the removal of a popular but costly petrol subsidy and restrictions on foreign exchange trading, a gamble by President Tinubu to try boost sluggish growth.

Within a year, some of the country’s biggest manufacturers incurred big losses as their borrowing costs swelled on the back of rising interest rates and a further devaluation of the naira.

The Central Bank of Nigeria (CBN) in May raised its monetary policy rate (MPR) for the third straight time by 150 basis points to 26.25 per cent in a bid to fight inflation and defend the battered naira. That takes the total hikes since February to a combined 750 basis points.

The official exchange rate increased from N463.38/$ on June 9, 2023, to N1, 473.7/$ as of June 11, 2024. At the parallel market, the naira depreciated to N 1,500/$ from 762/$.

The latest financial statements of 13 listed consumer goods firms show that seven of them – International Breweries Plc, Cadbury Nigeria Plc, Nigerian Breweries Plc, Nestlé Nigeria Plc, Dangote Sugar Refinery Plc, Champion Breweries Plc, and Guinness Nigeria Plc posted a combined loss of N388.6 billion in Q1.

Of the six remaining companies, three, which include BUA Cement, Lafarge Africa Plc and Nascon Allied Industries Plc reported a decline in their earnings by 37.6 per cent, 65.2 per cent, and 24.9 per cent respectively.

The remaining three including BUA Foods Plc, Unilever Nigeria Plc, and Dangote Cement Plc posted a combined profit of N171.9 billion, up from N152.6 billion.

FX illiquidity

President Tinubu took the reins of governance, when the naira was trading at 461/$ at the official market. However, due to a protracted forex scarcity that the economy consistently had to grapple with, manufacturers had to turn to the parallel market for their forex needs, where they, sometimes, had to buy foreign currency for as high as 900/$.

With the floating of the local currency on June 14, 2023, the challenge of forex illiquidity faced by manufacturers became aggravated, especially, in February 2024, when the naira traded for as much as 1,900/$.

Recently, during a presentation on the Manufacturers CEO Confidence Index, MAN’s Director of Research and Advocacy, Oluwasegun Osidipe, said manufacturing activities continued to suffer due to persistent forex scarcity and exchange instability.


According to the report, only 16.8 per cent of manufacturers surveyed affirmed that access to forex improved in Q1 2024; 62 per cent disagreed, while 21.2 per cent were not sure if forex sourcing had improved.

Despite the CBN’s clearance of forex backlogs and the re-introduction of dollar sales to the Bureau de Change operators, MAN said the invalidation of about $2.4bn forex forward contracts and the revocation of over 4,000 BDC licences had rather intensified the scarcity of forex during the quarter.

Ballooning cost of energy

For the past few years, skyrocketing energy costs have constituted one of the biggest challenges for local manufacturers, who require a great deal of energy to power their factories. The energy crisis has been exacerbated by a dwindling power supply from the electricity grid, coupled with a significant spike in the cost of alternative energy.

Data from MAN showed that energy is gulping 40 per cent of manufacturers’ operational costs.

Ahead of the recent increase in electricity tariffs, MAN President, Francis Meshioye, had warned that any increase in energy costs, such as electricity tariffs, would further increase the operating costs of manufacturers.

Meshioye had said, “We rejected the hike in the electricity tariff, because, in the first instance, energy costs are very high for manufacturers, particularly, those, who consume much like steel manufacturers.

“It takes an average of 35 to 40 per cent of their total costs. Any increase in the electricity tariff makes it harder on us. The harder it is, the harder it will be for consumers. When this is so, it means that the demand for products will drop. Like I said in my previous interview, the profit margin will be low.”

On April 3, the Nigerian Electricity Regulatory Commission, at a press briefing in Abuja, announced a hike in the electricity tariff for Band A customers. The hike represented a 240 per cent increase.

The development marked the removal of subsidy from the tariff of customers in the Band A category, who constituted about 15 per cent of the total 12.82 million power consumers across the country.

The hike, however, was met with fierce criticism from private sector players, who wondered why the government would make such a move at a time when businesses were struggling for breath.

On its part, MAN said it received numerous complaints from its members on the implications of the recent astronomical increase in the electricity tariff by the NERC for Band A customers without proper consultation with the private sector.

It said the sudden exponential increase in the face of inadequate electricity supply was inimical to the competitiveness of Nigerian products and businesses and would further aggravate the cost of production.

A breakdown of the NBS report revealed that out of 21 sectors, manufacturing activities, which used to contribute the most tax revenue recorded the lowest growth rate. This affected the aggregate CIT, which fell by 12.9 percent to N984.61 billion in Q1 from N1.13 trillion in the previous quarter.

Last month, the Federal Inland Revenue Service disclosed that it generated a total of N3.94 trillion in tax revenue in Q1. The performance, however, fell short of its quarterly revenue target of N4.8 trillion.

“The CIT is mostly paid by the major players like the multinationals and conglomerates. But many of them suffered very serious losses from the foreign exchange reform,” Dr. Muda Yusuf, Founder/CEO of Centre for the Promotion of Private Enterprise (CPPE), said.


According to him, the economy has not been favourable to most of them, who contribute a lot to tax revenue, especially, those in production.

Abiodun Kayode-Alli, tax senior manager at PwC, also noted that manufacturers pay a lot of taxes, but regretted that they are not finding it easy with the high cost of production,

“The state of the economy has seriously impacted the amount they (manufacturers) contribute to the government in terms of taxes’’, he said.

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