Nigeria's company income tax up 150% to ₦2.47tn in Q2’24

Nigeria's company income tax surged by 150.8% quarter-on-quarter to an impressive 2.47 trillion naira in the second quarter of 2024. This substantial increase comes at a time when the country is grappling with economic challenges such as inflation, higher energy costs, and the impact of recent petrol shocks. The aggregate receipt of the value-added tax also saw a significant growth rate of 9.1% on a quarter-on-quarter basis, reaching 1.5 trillion naira. Kenneth Erikume, Partner and Director of Tax Reporting and Strategy at PwC Nigeria, shed light on the factors behind these remarkable numbers in a recent interview with CNBC Africa. Erikume highlighted the proactive measures taken by the tax authorities, emphasizing a focus on customer service and the expansion of the tax net. The restructuring of the Federal Inland Revenue Service (FIRS) with a customer-centric approach has facilitated better collaboration between taxpayers and tax authorities. However, Erikume stressed the importance of not overburdening existing taxpayers and advocated for a broader tax base to prevent tax fatigue among contributors. In addition to these structural drivers, Erikume pointed out the impact of inflation on tax revenues. Rising inflation, particularly in key sectors like energy and food, has led to significant price hikes, affecting businesses and tax collections. He also addressed the tax implications of unrealized exchange losses for companies, noting that these losses are added back for tax purposes, contributing to tax payments even in the presence of losses. The discussion with Erikume delved into the policy landscape concerning taxes in Nigeria. The proposed increase in value-added tax (VAT) to 10% by the Presidential Tax Committee raised concerns within the business community. While short-term measures like the suspension of VAT on diesel have been welcomed, clarity and consistency in tax policy are essential for business sustainability. Erikume highlighted the process involved in changing VAT rates, involving the National Assembly and key stakeholders. Moreover, the conversation touched upon Nigerian banks facing a 70% windfall tax on their foreign exchange (FX) gains. Erikume expressed concern about the timing of this tax imposition, particularly as banks are already navigating capital requirements set by the central bank. The windfall tax adds a layer of complexity to capital raising efforts, potentially deterring investors and straining the availability of domestic capital in a competitive market. As Nigeria grapples with economic hurdles, including inflation, energy costs, and tax changes, stakeholders like Erikume underscore the need for a balanced approach to taxation. The rise in company income tax and VAT signals revenue growth but also underscores the importance of sustainable tax policies that support businesses and encourage compliance without stifling economic growth.