Nigeria’s Soaring VAT and CIT Collections in 2024: Implications for Businesses and Economic Growth Introduction: A Record-Breaking Year for Tax Collections The Federal Inland Revenue Service (FIRS) has reported a historic surge in tax collections for the 2024 fiscal year, with Value Added Tax (VAT) revenues rising by 84.62% to ₦6.72 trillion, compared to ₦3.64 trillion in 2023. Similarly, Company Income Tax (CIT) collections increased by 102.5% to ₦6.78 trillion from ₦3.35 trillion in 2023. This remarkable growth trajectory highlights the effectiveness of FIRS' digital transformation, tax compliance initiatives, and strategic revenue policies. However, it also presents new realities for businesses, taxpayers, and the overall economy. In this analysis, we will explore the drivers of this tax revenue increase, its implications for businesses, and what to expect from FIRS’ ambitious ₦25.2 trillion revenue target for 2025. Understanding the 2024 VAT and CIT Boom The unprecedented increase in tax revenue was driven by strong performance across multiple tax categories: 1. Breakdown of VAT Growth VAT collections grew across both import and non-import VAT categories: Non-import VAT (VAT collected from goods and services within Nigeria) surged 75.09% from ₦2.93 trillion in 2023 to ₦5.13 trillion in 2024. Import VAT (VAT paid on imported goods) recorded an even higher growth rate of 122.38%, increasing from ₦715 billion in 2023 to ₦1.59 trillion in 2024. This increase reflects improved compliance, inflationary effects, and a broader tax net. 2. Company Income Tax (CIT) Growth CIT collections rose by 102.5%, climbing from ₦3.35 trillion in 2023 to ₦6.78 trillion in 2024. This sharp increase is partially due to corporate profitability adjustments, foreign exchange fluctuations, and stricter tax enforcement measures. 3. Petroleum Profit Tax (PPT) and Hydrocarbon Tax Performance Petroleum sector contributions, including Petroleum Profit Tax (PPT), Hydrocarbon Tax, and Upstream CIT, grew by 35.2%, increasing from ₦4.26 trillion to ₦5.76 trillion. The increase aligns with higher international crude oil prices and renewed investment in Nigeria’s upstream sector. 4. Education Tax: The Fastest-Growing Tax Category Education Tax recorded the highest YoY percentage growth of 127.8%, surging from ₦719 billion in 2023 to ₦1.64 trillion in 2024. This reflects higher taxable profits and increased enforcement among companies required to remit Education Tax. Key Drivers Behind the 2024 Tax Revenue Growth Several factors contributed to this exceptional increase in tax revenue, including: 1. Digital Transformation and Tax Compliance Initiatives FIRS has leveraged technology to streamline tax administration, automate collections, and curb revenue leakages. The TaxPro-Max platform has played a critical role in enhancing tax compliance, simplifying filing, and increasing efficiency. 2. Economic Inflation and Currency Devaluation The naira's devaluation significantly increased nominal tax liabilities, particularly for import VAT and corporate profits. Businesses with foreign-denominated revenues paid higher taxes in naira terms. 3. Aggressive Tax Enforcement and Policy Reforms Broader tax net expansion, enforcement actions, and a focus on high-net-worth individuals and large corporations have increased collections. The removal of certain tax waivers and exemptions has further strengthened government revenue. 4. Petroleum Sector Recovery and Global Oil Prices With higher oil prices and renewed upstream investments, the government has recovered more PPT and Hydrocarbon Tax revenues. Implications for Businesses and Taxpayers The rising tax revenue collection brings both opportunities and challenges for businesses operating in Nigeria. 1. Increased Scrutiny and Compliance Expectations FIRS is now more aggressive in enforcing compliance. Businesses must ensure accurate filings, timely remittances, and detailed record-keeping. Tax audits and compliance reviews are expected to rise significantly. 2. Rising Cost of Doing Business VAT increases directly affect the cost of goods and services, impacting consumer spending and business operations. Manufacturers, importers, and service providers may adjust pricing strategies to offset tax liabilities. 3. More Frequent Tax Audits and Investigations The sharp increase in tax revenue suggests stronger enforcement mechanisms, meaning more businesses will be subject to tax audits. Multinational corporations (MNCs) and large taxpayers should prepare for transfer pricing scrutiny and compliance checks. 4. Higher Education Tax Liabilities With a 127.8% growth in Education Tax, taxable companies must account for larger contributions in their financial planning. Proper tax structuring and compliance strategies are essential to mitigate excessive liabilities. FIRS' Ambitious ₦25.2 Trillion Revenue Target for 2025 FIRS Executive Chairman, Zacch Adedeji, has set an ambitious revenue collection target of ₦25.2 trillion for 2025. Achieving this target will require: More aggressive tax enforcement to ensure compliance across all sectors. Potential introduction of new tax policies or rate adjustments. A broader tax net, particularly formalizing the informal economy. Stronger inter-agency collaboration to track tax compliance. Businesses should anticipate stricter policies and ensure their tax strategies are well-optimized. Key Takeaways for Business Owners and Tax Professionals ✔ Review your tax strategy: Ensure full VAT and CIT compliance while optimizing available tax deductions. ✔ Prepare for more audits: Keep detailed financial records to handle possible FIRS audits. ✔ Account for higher tax burdens: Adjust pricing and operational strategies to accommodate VAT, CIT, and Education Tax increases. ✔ Stay informed: Monitor FIRS policy changes to avoid penalties and unexpected tax liabilities. ✔ Consider tax planning advisory: Engage professional tax advisors to navigate Nigeria’s evolving tax environment effectively. Conclusion: A New Era in Nigeria’s Taxation Landscape Nigeria's ₦6.72 trillion VAT and ₦6.78 trillion CIT revenue collections in 2024 highlight a paradigm shift in tax administration, enforcement, and compliance. As FIRS targets ₦25.2 trillion in 2025, businesses must stay proactive, compliant, and informed. With stricter enforcement, rising tax burdens, and an evolving regulatory environment, strategic tax planning is now a business necessity. Businesses, tax professionals, and policymakers must collaborate to ensure sustainable tax compliance while maintaining economic growth. As Nigeria strengthens its fiscal position through taxation, the right balance must be struck between increasing revenue and supporting business growth to sustain long-term economic prosperity. Olatunji Abdulrazaq CNA, ACTI, ACIArb(UK) Founder/CEO, Taxmobile.Online