NSE 30 firms have effective corporate income tax rate of 20 %
Companies on the Nigeria Stock Exchange (NSE) paid ₦50.8billion less in tax as at the third quarter of 2017.
An analysis carried out by BusinessDay, examining the corporate tax filing of the NSE 30 companies (which make up 95 percent of market capitalisation of the Nigerian stock market) for the first nine months of 2017 showed that the profitable 19 of the NSE 30 firms collectively paid an average effective tax rate of 20.84 percent as at third quarter of 2017, a rate far less than the mandatory federal corporate tax rate of 32 percent (two percent educational tax rate inclusive) imposed by the government.
The Corporate Income tax rate is a tax collected from companies. Its amount is based on the net income companies obtain while exercising their business activity, normally during one business year.
The Nigerian company income tax stipulates that companies are subject to tax under the provisions of the Company Income Tax Act (CITA) of 1990 as amended to date. The taxation of companies is calculated on preceding year basis at a rate of 30 percent and a chargeable two percent as education tax on the company’s assessable profit.
The result of the analysis shows that these companies collectively paid 11.16 percent less than the statutory 32 percent federal corporate tax rate and also paid 5.37 percentage points less compared to the 26.21 percent rate paid in 2016, as gathered by BusinessDay.
Oil & gas and FMCG companies paid the most tax rate while the conglomerates companies, agricultural companies and banks paid the least tax rate.
Three oil & gas firms among the 19 examined NSE companies paid an average 20.29 percent rate. Nine banks paid nine months average of 33.02 percent rate.
FMCG firms paid an average 32.98 percent rate, agricultural companies paid average 7.65 percent rate.
“A lower effective tax rate than the stipulated tax rate depends largely on the type of industry and the various investments carried out by a company. As most companies enjoy capital allowance on qualifying capital expenditure, thereby easing the tax payable by the company.
Government also allows a form of tax relief to industries in order to ease tax burden and encourage investments. All these put in place will likely lead to a lower effective tax rate for a company,” said a tax consultant speaking annonymously to BusinessDay
The FGN gives out tax holidays to various industries in order to encourage investments in such industries. In 2017, the FGN through the federal ministry of industry approved for 27 new industries to be given tax holidays, agricultural businesses, and mining, entertainment, real estate and e-commerce firms inclusive.
At 32 percent federal corporate tax rate, the 19 companies analysed for the nine months ended September 2017 were suppose to pay N152.4 billion but paid N101.6 billion, as taxes for the period accounting for over N50billion deficit in the tax revenue.
Meanwhile for the nine months ended September 2016, the companies paid N85.4 billion compared to the expected N123.3 billion expected to be paid, equivalent to N37.8 billion less in taxes, as compiled by BusinessDay
According to report by BudgIT, Nigeria’s company income tax rate is higher than the world’s average CIT of 22.49 percent by 7.51 percentage points. Also higher than the average rates in Africa, European Union and Asia which stands at 28.53, 18.88 and 20.14 percent respectively.
In 2018, the federal government projects the revenue from CIT will be N794.69bn down by 1.65 per cent from the budget figures in 2017, which was N808bn.
The actual revenue derived from CIT in 2016 was N457.91bn lower by 3.25 points from the 2015 recorded revenue derived from CIT which was N473.32 per cent. Although, according to PWC Nigeria 2016 budget report, revenue from CIT was expected to increase by 33.2 per cent.
“Following the trend in the Nigeria budget for the proposed revenue to be generated from the CIT, there has been continuous deficit in the past years. So the question that comes to mind with regards to achieving the set revenue target from the CIT as a source of non oil revenue to fund the 2018 budget would be how achievable is it? Nevertheless, with the effort by the Central Bank of Nigeria through the introduction of the VAIDS by the government and some other measures put in place to ensure companies declare and pay their tax, there is hope that tax will contribute more to the nation’s GDP and as such will do better in terms of revenue generation,” said an analyst.
Nigeria’s tax to GDP ratio at six percent is very low compared to other neighbouring countries like Ghana’s 16 percent and South-Africa’s 27 percent.
The VAIDS, which is targeted at taking the country’s GDP to tax ratio from six percent to 15 percent by 2020, would add significant growth in the country’s tax to GDP ratio by raising more funds for the government.
Endurance Okafor and Ethel Watemi
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