Revenue Generation: Electricity, gas sector records highest VAT growth rate of 116.47% Quarter-on-Quarter

Oredola Adeola

The National Bureau of Statistics (NBS), has  revealed that the highest Value Added Tax (VAT) growth rate of  116.47 percent, on a quarter-on-quarter basis,  was recorded in the electricity, gas, steam, and air conditioning supply sector, as  aggregate VAT  was reported at N600.15 billion for Q2 2022.

The NBS made this known in the VAT Q2 2022 Report released in Abuja at the weekend. The report  showed as  aggregate VAT growth rate increased by 1.96 percent on a quarter-on-quarter basis from N588.59 billion in Q1 2022 to N600.15 billion in Q2, 2022.

This figure, therefore, showed that the electricity, gas, steam, and air conditioning supply sector reported a VAT of  N3,966,534,208.95(Q2, 2022) compared with N1,832,331,304.24  reported in first Quarter, of 2022.

The highest growth rate on a quarter-on-quarter basis reported on sector, was trailed by accommodation and food service activities with 42.44%.

Activities of extraterritorial organizations and bodies had the lowest growth rate with –42.39%, followed by Activities of households as employers, undifferentiated goods- and services-producing activities of households for own use with –36.57%.

In terms of sectoral contributions, the top three largest shares in Q2 2022 were Manufacturing with 33.08%; Information and communication with 18.98%; and Mining & quarrying with 10.60%.

Conversely, Activities of households as employers, undifferentiated goods- and services-producing activities of households for own use recorded the least share with 0.03%, followed by Activities of extraterritorial organizations and bodies with 0.05%; and Water supply, sewerage, waste management and remediation activities with 0.13%.

However, on a year-on-year basis, VAT collections in Q2 2022 increased by 17.16% from Q2 2021.

EnergyDay gathered that the 7.5% VAT rate is borne on  taxable goods and services (produced within or imported into the country) consumed by the final consumer, except on those specifically exempted by the VAT Act.

The VAT on electricity has significantly increased since February 2022, when the  N30 billion monthly electricity subsidy was totally removed,  thereby allowing the market participants to determine the course of action.

Electricity users in Nigeria have been paying more under the cost-reflective tariff which took off in 2022.

EnergyDay’s check showed that the increase in the VAT rate impacts the cost of electricity while the sector is still struggling to increase service delivery to electricity consumers in Nigeria.

All the electricity Distribution Companies (DisCos) in Nigeria have adjusted the Value Added Tax on their tariffs from 5 percent to 2.5 percent increase to accommodate the 7.5% rate being implemented by the Federal Government.

On  Natural Gas and Liquified Petroleum Gas(LPG), the Government newly introduced VAT (Modification) Order 2021 (“the Order”) imposed a 7.5% VAT on the supply of natural gas to most gas-based industries with the exception of the power generation companies.

Prior to the issuance of the Order, natural gas and LPG were exempt from VAT based on the VAT (Modification) Order 2020.

Since the take-off of the amendment in 2021 by the Federal Government, the order made it mandatory for natural gas and imported LPG to pay  VAT., while exempting only  LPG produced in Nigeria.
Importers and marketers of LPG in Nigeria have passed the 7.5 % VAT on to final consumers in form of higher prices. This has in turn increased the cost of filling a 12.5kg cylinder of LPG from about ₦4,000 in 2020 to almost ₦10,000.