Foreign companies in Nigeria have significantly outpaced their local counterparts in corporate tax payments, largely benefiting from the naira’s devaluation. This trend emerged following the Central Bank of Nigeria’s (CBN) foreign exchange unification policy, implemented in June 2023, which aimed to streamline multiple exchange rates into a single market-driven rate to attract foreign investment and curb FX shortages.
While foreign companies saw their Corporate Income Tax (CIT) contributions rise sharply, local businesses have been hit hard by the devaluation, leading to a more modest increase in tax payments.
Foreign CIT Soars
According to data from the National Bureau of Statistics (NBS), foreign companies’ CIT contributions jumped by 140.5% within a year following the FX unification. Foreign CIT grew from N1.42 trillion between Q3 2022 and Q2 2023 to N3.41 trillion between Q3 2023 and Q2 2024. This increase allowed foreign firms to dominate Nigeria’s tax revenues, accounting for 53.8% of total CIT collected during this period.
In contrast, local companies’ CIT contributions grew by just 35.1%, from N2.16 trillion to N2.92 trillion over the same timeframe.
Local Firms Struggling Under Pressure
Local businesses have faced greater challenges as the naira’s value fell by about 68% since the policy’s implementation, leading to volatile exchange rates. Many local companies, particularly those dependent on imports, have struggled with increased costs for raw materials and goods, eroding profit margins.
The devaluation has caused significant financial strain, with some of Nigeria’s largest companies reporting combined foreign exchange losses of N1.7 trillion in 2023. These losses forced several companies into restructuring, while others struggled to sustain operations.
The NBS data reflects the volatility in local CIT contributions. After a high of N1.02 trillion in Q2 2023, local CIT dropped to N651.63 billion in Q3 2023 and further to N533.93 billion in Q4 2023. However, it rebounded to N1.35 trillion in Q2 2024, underscoring the unstable economic conditions faced by local firms.
Industry Experts Weigh In
Manufacturers Association of Nigeria (MAN) Director-General, Segun Ajayi-Kadir, noted that the challenges facing the manufacturing sector, including exchange rate volatility and high electricity tariffs, are exacerbating local firms’ struggles.
Olufemi Oyinsan, General Partner at The Continent Venture Partners (TCVP), emphasized the difficulties faced by companies in Nigeria, including declining consumer purchasing power, high energy costs, and challenges in repatriating profits due to currency devaluation. He advised businesses to be creative and resource-efficient to survive the harsh economic climate.
Sustainability Concerns
While foreign companies have become a major source of CIT revenue, concerns are rising about the sustainability of this trend. If local firms continue to struggle, Nigeria’s reliance on foreign tax contributions could expose its economy to external risks. A potential downturn in global markets or reduced foreign operations in Nigeria could significantly impact the country’s tax revenues.
With the standard CIT rate set at 30% for large companies and 20% for medium-sized firms, the gap between foreign and local contributions highlights the pressing need for policy adjustments to support local businesses and ensure long-term economic stability.
