The Sectoral Distribution of Value Added Tax and Nigeria’s Under-explored Mining Sector

The Sectoral Distribution of Value Added Tax (VAT) released by the National Bureau of Statistics has revealed that ₦338.94 billion was generated as VAT in the first quarter of 2020. This amounts to an increase of 15.7 percent from the VAT receipt of ₦293 billion in the first quarter of 2019. Hike in VAT from 5 percent to 7.5 percent is purportedly responsible for this revenue increase. 

From the released data, professional services generated the highest amount of VAT thus overtaking other manufacturing that has been atop the VAT list for a while. Professional services accrued about ₦38.3 billion in VAT while other manufacturing earned about ₦37.4 billion. This represents increases of 57.5 percent and 18.9 percent from the VAT generation of professional services and other manufacturing between Q1 2019 and Q1 2020, respectively. Other top VAT generating items for Q1 2020 include commercial and trading, breweries, bottling and beverages, and state ministries and parastatals that generated ₦17 billion, ₦14 billion, and ₦10 billion, respectively.

On the other hand, mining, textile and garment industry, local government councils, and pharmaceuticals, soaps and toiletries generated the least VAT in Q1 2020. Mining generated only ₦61 million, the textile and garment industry generated ₦306 million, and local government councils generated ₦319 million. Compared to Q1 2019, mining, textile and garment industry, and local government councils had percentage increases of 3.65 percent, 2.65 percent, and 37.11 percent, respectively.

The Sectoral Distribution of VAT has also revealed that Nigeria’s mining sector has persistently generated the least VAT in the last couple of years. VAT generation was ₦147 million, ₦133 million, ₦135 million, ₦182 million, and ₦209 million for 2015, 2016, 2017, 2018, and 2019, respectively. Low VAT generation from Nigeria’s mining sector suggests underperformance. Recall that Nigeria’s solid minerals have been estimated to run into hundreds of billions of dollars. 45 different solid minerals are buried in different parts of the country. 

As resourceful as Nigeria’s mining sector is, it only accounts for 0.3 percent of the GDP. Underdevelopment of the sector is often connected to the country’s dependence on its oil wealth. The cost of Nigeria’s underdeveloped mining sector is enormous. In some cases, the country imports mineral items that could have been produced locally.

However, with the current revenue crises due to the fluctuations in the global oil market, efforts are underway to shift focus to Nigeria’s mining sector. In February 2020, the Minister for Mines and Steel stated the government’s intention to revamp the mining sector. According to him, the sector would be repositioned to provide as much as 3 percent of Nigeria’s GDP.

Beyond a statement of intention, the government must make efforts to ensure the achievement of its new goal. Efforts should be made to eliminate illegal mining that is rampant in the country. Also, the revenue collection process for the sector should be improved. Incentives should be provided to stimulate domestic investment in the sector. The process of obtaining mining licenses to also be improved on.