Nigeria’s corporate landscape witnessed a notable decline in Company Income Tax (CIT) payments across various sectors during the first quarter of 2024, as revealed by the latest data from the Federal Inland Revenue Service (FIRS). The report indicates that CIT payments in 14 out of 21 sectors of the economy registered a decline, reflecting the challenging economic environment characterized by a weakening naira, high inflation, and other macroeconomic pressures.
According to the FIRS, the total CIT collection for the quarter experienced a significant 12.87% decrease compared to the previous quarter. This decline has been primarily attributed to reduced profitability or outright losses reported by companies in key sectors such as manufacturing, agriculture, and others.
The manufacturing sector, which traditionally contributes significantly to CIT revenues, saw a staggering 70.24% drop in tax payments, falling from N145.06 billion in the fourth quarter of 2023 to N43.17 billion in Q1 2024. Similarly, the electricity, gas, and steam supply sectors reported a 69.14% decline in CIT payments, decreasing from N16.83 billion to N5.19 billion.
In specific industries, the agriculture sector recorded a 59.31% decrease, while the arts and entertainment sector witnessed a 56.19% reduction in tax contributions. Other sectors such as transport services (-45.49%), wholesale and retail trade (-39.66%), and real estate services (-40.64%) also experienced significant declines in CIT payments.
Dr. Muda Yusuf, Director of the Centre for the Promotion of Public Enterprise (CPPE), attributed the downturn in tax payments to the adverse macroeconomic conditions gripping the nation. He highlighted issues such as high inflation, unfavorable exchange rates, and escalating production costs, which have collectively eroded businesses’ profitability and capacity to fulfill tax obligations.
Yusuf further emphasized, “The decline in tax payment by companies reflects the harsh economic realities facing businesses. Profit margins have shrunk, and some companies are struggling to remain operational amid rising operational costs and dwindling consumer spending.”
The economic challenges were exacerbated by a sharp depreciation of the naira, which hit a record exchange rate of N1,500/$1 during the first quarter of 2024. Coupled with inflation reaching 33.2% by March, these factors severely impacted businesses across various sectors, leading to reduced revenues and, in some cases, business closures.
Financial reports from listed companies underscored the widespread profit declines witnessed in Q1 2024. Companies like Lafarge Cement and Beta Glass Plc in the industrial goods sector reported significant drops in Profit-After-Tax (PAT). Lafarge Cement recorded a 65% decline in PAT, while Beta Glass saw its earnings plummet from N1.89 billion to N1.43 billion.
The consumer goods sector also faced substantial challenges, with companies like Cadbury, Dangote Sugar, and International Breweries posting losses during the period, resulting in zero tax payments due to negative profitability.
The impact of reduced CIT payments on government revenues was palpable, as the FIRS fell short of its first-quarter revenue target by N860 billion. The service generated N3.94 trillion against a target of N4.8 trillion, highlighting the significant shortfall in tax collections that could affect overall fiscal planning for the year.
Looking ahead, stakeholders in the business community are calling for supportive policies and interventions to mitigate the adverse effects of the economic downturn on corporate profitability and tax compliance. The outcome of these measures could prove crucial in stabilizing business operations and restoring robust tax contributions in subsequent quarters.
The first-quarter CIT report underscores the urgent need for comprehensive economic reforms and targeted interventions to address the prevailing challenges and create an enabling environment for sustainable business growth and revenue generation.
