Companies Pay Less Tax in Q1 2024 Amid Worsening Economy

A recent review of the Company Income Tax (CIT) report for the first quarter of 2024 reveals a significant decline in income tax payments by companies in various sectors, highlighting the economic challenges faced by businesses in Nigeria.

Decline in CIT Payments

The CIT report indicates that companies in 14 out of 21 sectors experienced a decrease in tax payments, leading to a 12.87% overall decline in CIT collection for the quarter. CIT is levied on companies with a turnover of N25 million and above, at rates of 20% for turnovers between N25 million and N100 million, and 30% for turnovers exceeding N100 million.

Key sectors that saw notable declines include:

• Manufacturing: The largest drop, with CIT payments plummeting by 70.24%, from N145.06 billion in Q4 2023 to N43.17 billion in Q1 2024.
• Electricity, Gas, and Steam Supply: A 69.14% decline, from N16.83 billion to N5.19 billion.
• Agriculture: A 59.31% decrease in CIT payments.
• Arts and Entertainment: A 56.19% decline.

Other sectors with reduced CIT payments include transport services (-45.49%), wholesale and retail trade (-39.66%), real estate services (-40.64%), and human health and social work (-16.20%).

Economic Challenges and Declining Profits

The Director of the Centre for the Promotion of Public Enterprise (CPPE), Dr. Muda Yusuf, attributed the decline in tax payments to the macroeconomic challenges affecting the nation. These include high inflation, exchange rate volatility, and elevated input costs, which have severely impacted business profits.

Yusuf explained, “The decline in tax payment by companies means the economic situation is impacting the fortunes of businesses. CIT is charged on your profit, so if you are not making much profit, your tax payment would be reduced.”

Business Sector Struggles

In the first quarter of 2024, the exchange rate fell to a record N1,500 to the USD, while inflation reached 33.2% in March, leading to declining revenues and, in some cases, business closures. The Stanbic Purchasing Managers’ Index (PMI) for February dropped to 51.1 from 54.5 in January, reflecting high input costs driven by exchange rate weakness. Business owners reported that input costs had risen to the highest level in a decade.

Profit Declines Among Listed Companies

A review of the financial performance of listed companies revealed significant losses, contributing to the decline in tax payments:

• Lafarge Cement: Profit-After-Tax (PAT) declined by 65% in Q1 2024.
• Beta Glass Plc: PAT dropped from N1.89 billion to N1.43 billion.
• Cadbury: Posted a loss of N7.3 billion in Q1 2024, down from a profit of N3.5 billion the previous year.
• Dangote Sugar: Reported a loss after tax of N68.99 billion, compared to a profit of N12.80 billion in Q1 2023.
• International Breweries: Continued its loss streak, with losses increasing from N2.30 billion in Q1 2023 to N60.39 billion in Q1 2024.
• MTN Nigeria Plc: Saw a pre-tax loss of N575 billion in Q1 2024, from N162 billion the previous year.

Impact on Government Revenues

The decline in corporate profits has resulted in reduced tax payments, significantly impacting government revenues. The Federal Inland Revenue Service (FIRS) failed to meet its revenue target by N860 billion in Q1 2024, generating N3.94 trillion out of a targeted N4.8 trillion. This shortfall further exacerbates the challenge of achieving the annual revenue target of N19 trillion.

The economic environment remains challenging, with businesses struggling to maintain profitability amid rising costs and currency instability, ultimately leading to lower tax contributions and a strain on government finances.