Amidst various pressures on the Federal Government’s finances and 2020 budget’s revenue estimates, an indication has emerged that the government has already recorded a 25.3 per cent shortfall in Company Income Tax, CIT, in the first six months of the year. Also economy analysts say the sustained macroeconomic headwinds would likely worsen the CIT in the remaining periods of the year.
The Federal Government had, in the budget 2020, projected to generate N1.8 trillion in the full year and N900 billion in the first half, from the CIT, but a data from the Budget Implementation Report of the Budget Office of the Federation (BOF) obtained by Economic Confidential show that actual CIT revenue was N671.8 billion, about N227.8 billion or 25.3 percent shortfall.
The shortfall, the economic experts and financial analysts said, would continue to widen the 2020 budget deficits.
Against the backdrop of this situation, the Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed, in the report, said: “Revenue shortfalls impacted FGN Budget implementation in the second quarter of 2020. The price of crude oil in the international market averaged US$29.20 per barrel in the review period, representing a decrease of US$21.06 per barrel (41.90 percent) from the US$50.26 per barrel reported in the first quarter of 2020.
“This also reflects a decrease of US$39.62 per barrel (57.57 percent) but an increase of US$1.20 per barrel (4.29 percent) when compared to US$68.82 per barrel recorded in the second quarters of 2019 and US$28.00 per barrel amended budget benchmark, respectively.
“Overall, the macroeconomic environment in the second quarter of 2020 was relatively fragile. The situation might also worsen in the near-term if effective measures are not implemented to curtail the negative impact of the COVID-19 pandemic on the economy”
Economists and financial analysts have opined that the shortfall in income tax is not unexpected in view of the nationwide lock down which affected commercial activities adversely.
In addition, the dwindling oil prices which affected the revenue of oil companies, according to the analysts also contributed to the weak performance of CIT in the first half of the year, noting that oil price has not yet recovered from the adversity.
They, however, commended some companies listed on the Nigerian Stock Exchange, NSE, for their resilience despite the economic headwinds while calling on government to provide necessary incentives to attract more companies to be listed on the Exchange.
Financial analysis show that top 63 companies listed on the NSE in various sectors accounted for 30.4 per cent of the actual revenue of N671.56 billion from the companies’ income tax for the period under review.
Top 5 Companies In CIT
A review of the CIT from companies listed on the Exchange shows that MTN Nigeria Plc led the list of top payers with N44.7 billion. It was trailed behind by Dangote Cement Plc with N36.7 billion. Ecobank Plc occupied third position with N16.1billion followed by GT Bank Plc with N15.4 billion and UBA Plc posting N12.7 billion.
Experts’ Comments
Reacting to the shortfall in company income tax, Uche Uwaleke, a Financial Economist and Professor of Capital Market at the Nasarawa State University said: “One doesn’t need to look far to see the cause of the shortfall in the CIT collection. COVID’19 is to blame with supply chains disruptions and lockdowns that accompanied it which negatively affected most companies’ revenue and bottom lines. “Don’t forget also that the Collecting Agency, the FIRS (Federal Inland Revenue Service), as part of COVID’19 response measures, granted extensions to companies with respect to filing tax returns.
“That companies listed on the Stock Exchange made a significant contribution to the tax revenue pool is no surprise. Listing ensures transparency and demands adequate reporting and full disclosure.
“Tax evasion is made difficult following listing on the Exchange and so, it is in the interest of the government that more companies get listed. The government can facilitate this by granting fiscal incentives to companies willing to be listed on the Exchange.”
Commenting as well, Mr Victor Chiazor, Analyst and Head of Investment at Fidelity Securities Limited, said: “The tax revenue projection by the government for 2020 was quite ambitious despite the fact that the country had a lot of companies outside the tax net. Its half year tax shortfall of N227 billion was much better than we projected as we expected a much higher shortfall owing to the economic lockdown and relatively slow economic activity triggered by the pandemic during the period in question.
“The fact that 63 companies on the NSE accounted for 30.4 per cent of the generated income tax shows that it is easier for the government to get its tax revenue from companies that are visible like those listed on the NSE and it needs to create more incentives like tax cuts and other waivers to attract other big firms to the Exchange in a bid to make its job of tax collection easy.”
In his projection for the year, Chiazor said: “Going into the full year, we do not expect the government to be able to achieve a 100 per cent in terms of its budgeted tax revenue for the period, but expect it to achieve a revenue collection of about 77 per cent amounting to N1.38 trillion for the full year.”
Commenting as well, Mr Sola Oni, Chartered Stockbroker and Chief Executive Officer, Sofunix Investment and Communications said: “A company’s income tax is a function of profitability. It is obvious that companies’ earnings will be reduced by the impacts of covid-19 pandemic on business activities. Therefore, the shortfall of N227 billion in companies’ income tax of first half of 2020 is not unexpected.
“It is significant that 63 quoted companies accounted for 30.4 percent generated income tax by the government. This symbolizes one of the benefits of listing companies on the Nigerian Stock Exchange. A quoted company cannot evade tax as it must perform its corporate responsibilities and there is nowhere to hide.
“Government can attract quotable companies to the market through incentives such as granting of tax holiday and patronage of the company’s products and services.”
While commenting on the prospecting of government meeting its revenue projection for 2020, Oni said: “It is doubtful that government can achieve the target for tax going by the current inclement operating environment and its attendant effects on corporate earnings and Gross Domestic Product (GDP). More so, virtually all performance indicators have been downgraded by renowned rating agencies, World Bank, International Monetary Fund (IMF) and other financial institutions.”
In his own comment, Mr David Adonri, Chartered Stock Broker and Executive Vice Chairman, HighCAP Securities Limited said: “Under-collection of company income tax by N227billion in first half, H1’20 against budget target is not surprising. Disruptions of Covid19 during H1, caused the deviation. It is a serious dent on the fiscal economy. It has sent government into excessive borrowing and deficit finance. Several projects and obligations have become underfunded.
“The contribution of companies listed on the NSE is interesting to note but it ought to be higher if the NSE is to serve as barometer for the economy. The effectiveness and ease of company tax collection will be enhanced if more companies are listed on the NSE because of the high levels of transparency and integrity of their disclosures.
“Government can compel several companies which occupy commanding heights of the economy to list, so as to drive compliance with tax laws.”
On the projection for the full year, Adonri said: “It is a herculean task for government to achieve the 2020 budget target of N1.79tn due to current socioeconomic situation. COVID-19 is still raging, stagflation is at hand and insecurity remains at catastrophic level. Fiscal austerity and re-channelling of expenditure to critical sectors are the most sensible options for macroeconomic stability now.”
