Tax: FG generates N881.02bn from banks, other financial institutions in 5 years
…N472.88bn from breweries, beverages
By Kayode Tokede, Akinyemi Kehinde and Mercy Akindiya
The federal government through the Federal Inland Revenue Service (FIRS) generated N881.02 billion from Company Income Tax (CIT) and Value Added Tax (VAT) from banks and other financial institutions in five years.
The CIT rate is 30 per cent for large companies (i.e. companies with gross turnover greater than N100 million), assessed on a preceding year basis (i.e. tax is charged on profits for the accounting year ending in the year preceding assessment).
The FG in 2020 increased VAT rate from five per cent (specified in the VAT Act) to rate of 7.5 per cent, in a move to drive non-oil sector contribution to government revenue.
Banks operating in the country pay CIT, re-education tax, Police Trust band levy and NITDA levy.
The breakdown of the N881.02 billon generated by FIRS through CIT and VAT in the National Bureau of Statistic (NBS) recent report showed that N121.17billion was generated in 2020, about 24 per cent decline from N159.85billion reported in 2019.
In 2018, FIRS generated N158.58 billion through CIT and VAT as against N158.96 billion reported in 2017. However, CIT and VAT of N148 billion was generated in N148.96 billion, while in 2015, N133.99 billion was generated.
Explaining why there was reduction in CIT and VAT payment by banks and other financial institutions in 2020, the Fiscal Policy Partner and West Africa Tax Leader at PriceWaterhouseCoopers, Mr. Taiwo Oyedele in a chat with our correspondent said, “It is important to understand how tax system works, otherwise it will be confusing to conclude that banks make more money in 2020 and then they pay less taxes which is wrong.”
According to him, “What happened was that tax of 2019 was collected in 2020 and the current one witnessed a number of reforms. Out of these reforms, the most significant is what we called excess dividend tax.
“Taxes paid in 2020 will be on the profit of 2019 so the profit that they made in 2020. Mind you, banks make more profit during COVID-19. So the income will come in as tax 2021.
“In the area of VAT, we need to remember that small banks were are exempted from charging VAT towards end of 2019. If we combine the effect of these, I believe is what that will be accounted for their decline in CIT and VAT contribution in 2020.”
He added that, “Even before COVID-19, there are many banks that were not making profit. The biggest one makes more profit and we see the growth of the financial sector in 2020 it was double digits growth. I don’t think the problem is they did not make profit.
“Whether they make profit in 2020 or not, will not be in the tax for 2020, it will be in the tax for 2021.”
Speaking from a different perspective the President and Chairman of Council, Chartered Institute of Taxation of Nigeria (CITN), Dame Gladys Simplice attributed the decline to business environment, stressing that 24 per cent decline in CIT and VAT paid by banks and other financial institutions to COVID-19 lock down.
In her words, “Businesses were not going well as these were key component that contribute to the revenue of banks.
“For example, companies for most of last year were on lockdown. Companies that did not go on lockdown, operated partially. The decline in finance activities made VAT and CIT paid in 2020 reduce.”
However, the Director- General of Lagos Chamber of Commerce & Industry (LCCI), Mr. Muda Yusuf also attributed the decline to economic challenges of 2020.
He noted that banks with decline in profit might pay lesser CIT and VAT to federal government in 2020.
According to him, “The decline in CIT and VAT paid by banks and other financial institutions is a reflection of economy challenges of 2020.”
Our correspondent gathered that breweries, beverages and bottles paid N472.88 billion as CIT and VAT to FIRS in five years.
