Every month FAAC revenue, accrued when the federal government, states and local governments, share remittances that come to the federation is shared among the federal government, the 36 states and all 774 local governments.
This fund is to ensure development at different levels of government while helping states and local governments to meet their day to day obligations. FAAC is however not the only source of revenue for states and the local governments as they also have internally generated revenue (IGR). Unfortunately, between 2017 and 2020, most states have not made IGR that match their FAAC revenues which essentially means most states in Nigeria are dependent on the central pool for the running of their states.
So how much has each state of the federation gotten from the Federation Accounts Allocation Committee between January and June, 2022?
In the six months under review, a sum of N 1.370 Trillion was shared among the 36 states.
Under the current revenue sharing formula, the Federal government gets 52.68 per cent of the revenue shared, States get 26.72 per cent while Local Governments get 20.60 per cent.
However, states don’t all get the same amounts from FAAC. Oil producing states get a 13% derivation fund in addition to their statutory percentage of FAAC revenues. Only eight states get the 13% derivation fund of Nigeria’s 36 states. They are Abia, Akwa-Ibom, Bayelsa, Delta, Edo, Imo, Ondo and Rivers. Five of these eight states are among the top ten of those that have received the highest FAAC allocation between January and June,2022.
Other factors considered in sharing the FAAC revenue among states are population, Land mass, Water Supply, health facilities, Schools enrollment, among others.
Another key decider of what states earn is Value Added Tax. VAT revenues formula for sharing is 15% to the Federal Government, 50% to States & FCT, and 35% to Local Governments. Other factors used in the distribution are equality 50% and population 30% and then there is the 20% derivation. The Federal Inland Revenue Service collects 4% cost of collection and Nigeria Customs Service collects 2% cost of collection in the case of import VAT.
There has been controversy and heated debates in circles about VAT distribution among states. While the controversy is about who should collect VAT which is spurred by the perception of inequality in the current sharing formula; even the definition of who collects what and what makes up what is shared is confusing at first glance and likely even after multiple glances.
So let’s break down how VAT revenue is shared. We will assume that total VAT for the month of June is 20 million naira and that the 50% to states is shared as 20% derivation first, then population, then equality.
The first formula that applies to the 20 million VAT is the 15% to Federal, 50% to states and 35% to local governments. So then the Federal Government collects 3 million Naira, states have 10 million naira and 7 million naira.
Now from the states 10 million, the 20% derivation is applied which is 2 million from the pool. This 2 million is shared based on how much each state contributed to the VAT which means the higher the state’s VAT contribution to the pool, the higher their share of the 2 million.
From the remaining 8 million, 30% is taken out based on population. Which means 4 million will be shared among states, and the state with the highest population gets the most while the state with the smallest population gets the smallest share.
The remaining 5.6 million is then shared equally among all the states.
A state like Lagos state got N10 billion gross VAT allocation for May, separate from its statutory FAAC percentage.
Deductions can reduce the Net available revenue to a state. Deductions such as External debt, Contractual obligations(irrevocable standing order payments) and other deductions, are made before the Net available FAAC revenue to a state is determined. If a state has high external debt, contractual obligations and other deductions, it can affect what is recorded as net FAAC revenue.
For example, Lagos state gross FAAC receivable is N15.567 billion but it received N9.752 billion Net FAAC after deductions.
Under the current revenue sharing formula, the Federal government gets 52.68 per cent of the revenue shared, States get 26.72 per cent while Local Governments get 20.60 per cent.
So, how much did your state get?