The Impact of COVID-19 on VAT Revenue Generation in Nigeria

In this article, we discuss the impact of the COVID-19 pandemic on VAT revenue generation with focus on the expected gains from the introduction of the Finance Act, 2019.

On 13 January 2020, prior to the outbreak of COVID-19 pandemic, the Nigerian President signed the Finance Act, 2019. Amongst other things, the Finance Act 2019 introduced changes to the Value Added Tax (VAT) Act, and it seeks to generate increased government revenue, support small and medium scale enterprises and improve the ease of doing business. However, the introduction of the Finance Act 2019 was followed by the outbreak of the COVID-19 pandemic.

Expected Impacts of Finance Act 2019 on VAT Revenue Generation

The Finance Act 2019 introduced a 50% increase in the VAT rate resulting to an increase from 5% to 7.5%, effective from 1 February 2020. This move was aimed at increasing the tax revenue available to government at all levels. Also, the penalty for late filing of VAT was increased from N25,000 for the first month of default and N5,000 for subsequent month(s) of default to N50,000 for the first month and N25,000 for the subsequent month(s) of default. The increase in the penalty for late filing was aimed at discouraging late filing of VAT returns and by extension late remittance thereby driving voluntary compliance. Similarly, the penalties for failure to register for VAT, notifying the tax authority of a change of address or permanent cessation of business and remittance of taxes were increased.

Further, companies with gross turnover below N25 million have been exempt from the obligation to register, charge, file and remit VAT. This will relieve small companies from the obligation and cost of VAT compliance and allow them focus on their businesses. It is important to note that the VAT on the sales/ supplies of small companies will not be lost, as it will be accounted for by their customers through the VAT self-charge mechanism. Hence, there would be increased VAT collection on transactions performed by small companies as previously many small companies (mostly in the informal sector) do not issue VAT invoice.

Additionally, the shift from accrual basis to cash basis for VAT payment has positively impacted the cashflow of many companies. Previously, companies were required to remit VAT on all invoices issued for supply of goods and services, irrespective of whether the applicable VAT has been collected or not. In situations where the sales go bad, the VAT Act does not provide any modality for the recovery of VAT already paid but never collected. While this comes as a relief to the taxpayers, it may distort the pattern and amount of VAT revenue that accrues to the government monthly.

The COVID-19 Effect

On 30 March 2020, the government announced the lockdown of Lagos, Ogun and Abuja. Social distancing protocols and travel restrictions were also put in place to manage the spread of the virus. The resultant impact of these measures include production shutdown, disruptions in the supply chain of goods and service, suspension of local and foreign air transportation, shutdown of eateries, restaurants, hotels and leisure spots, amongst others. As a result, the VAT revenue that should have accrued to the government from the supply of goods and services highlighted above will be lost.

It is however important to emphasize that the COVID-19 pandemic did not leave the government in a total state of despair, as it resulted to a change in consumption pattern thereby increasing the tax revenue generated from other sectors of the economy. For instance, most individuals and companies resorted to using information technology to collaborate and carry out their daily business activities. Technology platforms (that provide virtual meeting capabilities) experienced unprecedented increase in demand and sales while internet service providers and telecommunication companies also experienced increased sales due to increased demand for data and airtime. Similarly, the demand for logistics services increased as that was the only means of getting goods delivered to customers. Furthermore, payment platforms through which payment for these goods and services were made recorded increased demand and sales. With increased demand and sales, it is expected that the VAT payable to government would increase proportionately.

Based on the report from the National Bureau of Statistics (NBS), some sectors reported impressive GDP growth rates as follows; telecommunication sector (18.1%), financial services sector (28.41%), health sector (1.89%) and broadcasting sector (8.78%). Further, VAT collection for January to June 2020 amounts to N651.77bn compared to N600.98bn collected in January to June 2019, representing 8.45% increase. While the increase is encouraging, total VAT collection for April to June 2020 amounted to N327.2bn representing a meagre 0.81% increase when compared to N324.6bn for January to March 2020.


The pandemic has negatively impacted the expected increased VAT revenue generation as it resulted in loss of VAT revenue from the production and supply of goods and services not qualifying as essential goods and services. Further, COVID-19 has resulted in a distortion of the normal course of production and supply of goods and services as well as the consumption pattern of the citizenry. Hence, the expected increase in government revenue as a result of the recent VAT Act amendments has been impacted by the pandemic.

It is interesting to note that the International Monetary Fund (IMF) had earlier in the year predicted a 3.0% decline in the global economy in 2020 and a 3.4% decline in the Nigerian economy for the same period. However, the international body also predicted a rebound of 5.8% and 2.4% in the global and Nigerian economy respectively in 2021, thereby raising hopes for tax revenue generation.


The Impact of COVID-19 on VAT Revenue Generation in Nigeria
The Impact of COVID-19 on VAT Revenue Generation in Nigeria