In spite of the widespread economic challenges, product taxes in Nigeria soared to N1.36tn during the initial six months of 2023, marking a significant increase of 113.29% from N636.19bn recorded during the same period in 2021. This also represents a 25.00% rise from the N1.09tn figure for the corresponding period in 2022. These statistics, based on current basic prices, have been sourced from data on Net Indirect Taxes on Products by the National Bureau of Statistics.
When adjusting for inflation, the product taxes for the first half of 2023 reached N465.94bn, marking a notable growth of 34.98% from the N345.19bn recorded in the first half of 2021. This figure also represents an 11.94% increase from the N416.23bn reported during the corresponding period in 2022.
According to the World Bank, net indirect taxes (taxes less subsidies on products) are the sum of product taxes less subsidies. It stated that product taxes are taxes payable by producers as they relate to the production, sale, purchase, or use of the goods and services.
The country’s Gross Domestic Product grew by 2.51 per cent (year-on-year) in real terms in the second quarter of 2023. This was lower than the 3.54 per cent recorded in Q2 2022 and the NBS suggested this may be because of challenging economic conditions being experienced.
In response to the global economic downturn impacting revenue, the Federal Government has been intensifying its tax collection efforts. Its 2023-2035 Medium Term Expenditure Framework and Fiscal Strategy Paper outlined strategies to enhance revenue generation. This involves improving tax administration processes, introducing new or elevated pro-health taxes, and eliciting mixed responses from the public.
The rise in year-on-year product taxes contrasts with the declining purchasing power within the nation, as inflation soared to 22.79% in June. High inflation has contributed to increased poverty rates, pushing approximately four million Nigerians into poverty between January and May 2023, according to the World Bank.
Inflation is expected to continue to rise and is predicted to hit 25 per cent by 2023. The global bank said, “Headline inflation is expected to rise from 18.8 per cent in 2022 to 25 per cent in 2023.”
Meanwhile, the International Monetary Fund has been advising Nigeria to raise its VAT rate to 15 per cent by 2027, which could further increase the amount generated from product tax and increase the prices of products.