Falling Company Income Tax exposes pressure on Nigerian businesses as VAT increases
Nigerian businesses appear to be generating sales but struggling to convert them into profits, according to the analysis of the latest tax data, raising fresh concerns about the pressure high operating costs continue to place on the private sector.
Nigerian businesses appear to be generating sales but struggling to convert them into profits, according to the analysis of the latest tax data, raising fresh concerns about the pressure high operating costs continue to place on the private sector.
Data released by the National Bureau of Statistics (NBS) showed that Company Income Tax (CIT) collections fell sharply by 31.05 percent to N1.37 trillion in the first quarter of 2026, down from N1.98 trillion in the corresponding period of 2025.
In contrast, Value Added Tax (VAT) collections rose by 17.06 percent to N2.42 trillion during the same period, compared to N2.06 trillion a year earlier.
The divergence between the two taxes has drawn attention because VAT is tied to spending and transactions, while CIT is linked to corporate profitability.
“Two NBS numbers from Q1 2026 that nobody is reading together are VAT collections and company income tax collections,” said Opeyemi Ajetunmobi, head of advisory and research at a Lagos-based investment and advisory firm.
“VAT collections rose 17 percent year-on-year, while company income tax fell 31 percent. The headline VAT number looks like progress. The CIT number tells a different story.” Adetunmobi said in a Linkedin post
According to him, the figures suggest that while economic activity remains relatively active, businesses are facing increasing difficulty preserving margins amid elevated interest rates, exchange-rate pressures, and rising operating costs.
The latest tax data comes against a backdrop of persistent inflationary pressures. Nigeria’s headline inflation rate rose to 15.69 percent in April 2026, while food inflation stood at 16.06 percent and core inflation at 15.86 percent, reflecting continued pressure on households and businesses.
For many firms, rising costs of energy, logistics, financing, and imported inputs have remained key challenges despite signs of improving macroeconomic stability.
“This is a reflection of the mounting pressures facing businesses across the economy,” said Bolanle Daniel-Utere, finance director at a free trade zone.
“It could be a result of weakened corporate profitability driven by rising operating costs, increased borrowing costs, inflationary pressure, and generally challenging economic conditions.”
She acknowledged that while many companies continue to report growth in turnover, higher costs are eroding profit margins, reducing taxable profits, and ultimately lowering company income tax collections.
The tax figures also reveal a growing dependence on foreign companies for corporate tax revenue.
Foreign companies contributed N828.82 billion in CIT during the quarter, significantly higher than the N538.91 billion generated from domestic firms.
Ajetunmobi said the figures suggest multinational and export-oriented companies are proving more resilient than many local businesses.
“Foreign companies are carrying domestic companies,” he said. “Multinationals and export-oriented firms are contributing more than 60 percent of corporate tax revenue, while Nigerian-owned businesses are under disproportionate pressure.”
The development suggests government efforts to capture taxes from foreign digital businesses are beginning to yield significant results and are reshaping the country’s tax base.
However, not all companies are experiencing weaker profitability.
Corporate earnings released for the first quarter paint a more mixed picture.
MTN Nigeria reported a 165.9 percent increase in profit after tax to N355.5 billion, supported by strong data revenue growth and reduced foreign exchange exposure after repaying outstanding foreign currency loans.
Similarly, Dangote Cement grew profit before tax by 35 percent to N421.1 billion as revenue rose to N1.19 trillion and cost pressures moderated.
The strong performances suggest that while many businesses remain under pressure, larger firms with pricing power, scale advantages and stronger balance sheets are proving more resilient than smaller operators.
The contrast highlights a widening gap within corporate Nigeria, where a handful of large firms are benefiting from economic stabilisation while many businesses continue to grapple with elevated costs and weaker margins.
Daniel-Utere said the latest figures underscore the need for policies that support business growth rather than focusing solely on revenue collection.
“The conversation should extend beyond tax collection targets to creating an environment where businesses can operate efficiently, invest confidently, and grow profitably,” she said.
“When businesses thrive, government revenues benefit. When margins are squeezed, tax collections inevitably come under pressure.”
For investors, lenders, and policymakers, the latest tax data may offer an early warning signal. Businesses may still be generating revenue and transactions, but the sharp decline in company income tax suggests many are retaining less profit from every naira earned.
Whether the trend reflects temporary cost pressures or a deeper weakness in corporate profitability will become clearer in the quarters ahead, but the gap between rising VAT and falling company income tax has become one of the clearest signals emerging from Nigeria’s latest economic data.
