By Chinwendu Obienyi

Recovery in domestic demand is expected to remain supportive of Value Added Tax (VAT) collections amid inflationary pressures.

Some economic analysts have said this will result in a combination of high VAT and Companies Income Tax (CIT) which will support FG’s non-oil revenue performance at the end of 2022.

This is coming after the National Bureau of Statistics (NBS) revealed that VAT collection maintained its increase, rising by 17.2 per cent year-on-year (y/y) to N600.15 billion in the second quarter(Q2) of 2022 as against N512.25 billion recorded in the same period in 2021.

NBS, argues that the increased VAT collections reflect the impact of higher prices of goods and services and resilient consumer spending. 

Analysing the data, Cordros Research said that the growth in local (+91.6 per cent y/y to N359.12 billion | 59.8 per cent of total VAT collection) and NCS-import (+10.9 per cent y/y to N129.90 billion | 21.6 per cent of total VAT collection) VAT collections were enough to offset the decline in foreign VAT collections (-46.5 per cent y/y to N111.13 billion | 18.5 per cent of total VAT collection).

“In the absence of any major shock to the domestic economy, we expect the lingering recovery in domestic demand to remain supportive of VAT collections even as inflationary pressures remain elevated. Accordingly, we expect the combined impact of higher VAT and CIT collections to support the FGN’s non-oil revenue in 2022E”, they said.

They further noted that since Nigeria’s trade balance maintained a surplus position for the second consecutive month, the higher crude oil prices will support exports over the short term, we expect the impact to be tethered by low crude oil production volume. 

“Similarly, we believe the higher global commodity prices relative to the prior year would continue to exert upward pressures on total imports amid pressure on the local currency. Accordingly, we expect the trade balance surplus to moderate over the short term”, analysts at Cordros said.

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Source: news