The hospitality industry has demonstrated growth by remitting N38.81bn in value-added tax during the first nine months of 2025. Yet, this vitality conceals underlying challenges that require government support, writes ARINZE NWAFOR
Nigeria’s accommodation and food service activities sector remitted a total of N38.81bn in value-added tax in the first nine months of 2025. This reflects a steady rebound in hospitality activities and consumer spending despite structural challenges within the sector, The PUNCH gathered.
Data from the National Bureau of Statistics showed that VAT collections from the sector rose 15.61 per cent from the N33.57bn recorded in the corresponding period of 2024. The figures underscore a gradual recovery in the hospitality industry, which had faced significant headwinds in recent years due to inflationary pressures, high operating costs, and weak consumer purchasing power.
A breakdown of the 2025 figures showed that VAT remittance stood at N13.58bn in the first quarter, declined to N11.99bn in the second quarter, and rose again to N13.24bn in the third quarter. This pattern reflects a mild dip in mid-year activity before a rebound, suggesting that seasonal and economic factors influence demand.
In comparison, the 2024 performance showed a more gradual upward trajectory. VAT collections decreased from N11.44bn in the first quarter to N10.34bn in the second quarter before rising to N11.80bn in the third quarter. While the sector also recorded fluctuations in 2024, the overall lower base highlights the stronger performance recorded in 2025.
Analysts suggest that the year-on-year growth indicates that more Nigerians are spending on hospitality services such as hotel accommodation, dining, and events, while businesses in the sector are improving compliance with tax remittance.
The data further suggests that the hospitality industry is gradually regaining momentum, supported by increased urban consumption, a rise in social and corporate events, and expanding food service options, particularly in major cities.
Nevertheless, industry stakeholders note that the increase in VAT collections does not necessarily translate into higher profitability for operators, as rising costs and multiple taxation continue to erode margins.
Improved consumption drives growth
In separate interviews with The PUNCH, analysts and stakeholders stated that the increases in VAT remittances reflect rising consumption across the hospitality sector, particularly in urban centres where dining out and hotel patronage have become more common.
The Director of the Centre for the Promotion of Private Enterprise, Dr Muda Yusuf, observed that increased patronage of hotels and restaurants played a significant role in boosting VAT collections.
He said, “If you look at the hospitality sector, particularly our big hotels in the major cities, the patronage has been amazing. The hospitality industry is one of the sectors that is doing well, particularly the top hotels. The patronage has been very good.”
He added that the structure of VAT as a consumption tax naturally ties revenue growth to increased spending on services. “For instance, if you check into a hotel, the bill you will be given will reflect the VAT. If you go to any major restaurant, the bill you will be given will have the VAT”, Yusuf said.
The CPPE chief noted that changing consumer habits, especially among urban residents, are also driving growth in the sector.
He explained, “Lots of people now eat outside. A lot of young people, too, are in the middle class or come from middle-class families. More and more people are eating out and buying food from restaurants.”
E-commerce and lifestyle shifts boost food services
Beyond traditional dining, the expansion of e-commerce and food delivery services has significantly boosted the food segment of the hospitality industry.
Yusuf noted that digital platforms, such as Glovo and Chowdeck, have made it easier for consumers to obtain meals without visiting restaurants.
He remarked, “Because of all the e-commerce-related activities, people order things online. You have all these guys riding bicycles, moving up and down, going to pick those items. E-commerce has also helped boost this food business.”
This shift has transformed the sector into one of the fastest-growing segments of the Nigerian economy, particularly in major cities like Lagos, Abuja, and Port Harcourt. The growing demand for convenience, coupled with busy work schedules and changing lifestyles, has led many households to rely more on prepared meals.
Yusuf maintained that, “As far as now, they do not even cook food anymore. They just go there. They open up these places and get their food.”
Events and politics lift hotel occupancy
Industry experts also attribute the growth in VAT collections to increased use of hotels for events, conferences, and political activities.
Yusuf said, “For hotels, there are all these political activities and events that are taking place. Since there is a lot more money now with the states, political parties also use the hotels very well, particularly in the major cities.”
This trend has led to improved occupancy rates, especially for high-end hotels that host conferences, business meetings, and government-related events.
The rise in corporate engagements and social events, such as weddings and parties, has also contributed to increased demand for hospitality services.
Operators say growth masks deep challenges
Despite the positive VAT figures, operators insist that the growth does not reflect improved profitability, as rising costs continue to squeeze margins.
The President of the Nigeria Hotel and Catering Institute, Gbenga Sumonu, said consumers ultimately bear the cost of VAT, but it adds to the burden on businesses.
He stated, “The decisions in the hospitality, tourism, and health services are just collecting the gains on behalf of the government. It is the guests who are paying for every product and service consumed in that facility.”
Sumonu explained that the 7.5 per cent VAT rate contributes to higher prices, which can affect demand. “The 7.5 per cent has actually made so many guests start looking for alternative competitive facilities and those that serve less”, he noted.
The hospitality stakeholder noted that rising energy costs have further compounded the situation. “Energy has become a second god. It has really eaten into profit. Even with solar, you know what it is costing now,” he lamented.
Many operators report struggling to cope with the high cost of alternative power sources, which are essential for running hospitality businesses in Nigeria.
Competition from informal operators
Another challenge facing formal hospitality businesses is the rise of informal operators, including short-let apartments and unregistered accommodation providers.
Sumonu warned that such operators could evade taxes, giving them a pricing advantage over registered hotels. He noted the rise of ‘bed and breakfast’ outlets, especially, remarking, “BNB operators are taking good value in the market, and those are hidden institutions that may not even pay tax. They have the liberty to reduce prices compared to recognised institutions.”
The hospitality institute director cautioned that this trend has intensified competition and reduced the market share of compliant businesses.
Multiplicity of taxes persists
Industry stakeholders also raised concerns about multiple taxation, which they say continues to burden operators despite ongoing tax reform discussions.
Following an off-the-record conversation with the President of the Hotel and Personal Services Employers’ Association of Nigeria, Adeniyi Ologun, The PUNCH learned that some operators have sought redress in court. They are challenging the payment of similar taxes to both federal and state governments and are awaiting a Supreme Court judgment.
Director of the CPPE, Yusuf, criticised the simultaneous operation of federal VAT and state consumption taxes, noting that it results in duplication.
He said, ‘Where you have VAT, you are not supposed to have state tax.’ VAT is a consumption tax. State tax is also a consumption tax. There is an issue of multiplicity.”
He expressed hope that the tax reform framework would fully address the problem.
Call for government support and reforms
Operators are calling on the government to provide targeted support to sustain growth in the sector.
The President of the Nigeria Hotel Association, Patrick Anyanwu, said the increase in VAT remittance reflects compliance by operators, despite limited support from authorities.
He stated, “Seeing that the government recorded a 15 per cent increase shows you that the hospitality sector is actually making attempts to abide by certain rules of remitting the VAT.”
However, he lamented the lack of government assistance. Anyanwu said, “While we are actually trying to obey the rules and regulations, we seem to be neglected by the government. We have witnessed multiple instances of taxation and revenue collection. We are not receiving any kind of tangible support.”
He added that operators need financial assistance to upgrade facilities and remain competitive. “We do not receive any tangible grants from the government or any support. Even talking about bailouts, we do not receive such things,” Anyanwu stated.
Stakeholders are advocating improved access to credit and the elimination of double taxation to enhance the sector’s sustainability.
They argue that providing tax-paying hospitality businesses with concessional loans and grants would enable them to expand operations, improve service quality, and create jobs.
Sumonu also emphasised the need for infrastructural support, particularly in the area of energy. He said, “We are appealing to the government to create infrastructural support which would enable us to run this industry profitably.”
