In the second quarter of 2024, the Federation Account earnings (FAAC) generated N6.28 trillion in income, primarily due to substantial collections from excise taxes, customs, and value-added tax (VAT).
72.42% of the total revenue came from these sources, which dominated revenues within the federation account.
According to the Central Bank of Nigeria’s economic report, non-oil revenue totaled N4.55 trillion, a 32.22% rise over the previous quarter.
The revenue surpassed the government’s goal by 23.07% during the same period.
The increase was primarily due to higher collections from the federal government’s independent revenue streams, VAT, and customs and excise fees.
Low Revenue from Oil
Even though oil revenue increased slightly, it only made up 13.23% of FAAC’s overall allocation in Q2 2024.
- During that time, FAAC received N1.73 trillion in financial support from oil earnings. But according to the study, oil revenue was 67.30% below the government’s goal.
- Lower oil output was the main cause of this underperformance, as Nigeria still had difficulty meeting the federal government’s 2 million barrels per day (bpd) objective.
- According to the research, the nation’s production decreased from 1.3 million barrels per day in the first quarter of 2024 to just 1.27 million barrels per day in the second quarter. Among other issues, this production drop is attributed to ongoing oil theft, illicit refining operations in the Niger Delta, and pipeline damage.
- Furthermore, gains in VAT and customs collections more than made up for the reduced oil earnings, which had previously been the government’s main source of income.
Notably, upstream Corporate Income Tax (CIT), Petroleum Profit Tax (PPT), and royalties paid into the federation account are all included in oil revenue.
What To Note
A revised method of allocating FAAC will be indicated by the Federation Account’s transition from oil revenue to other sources of income.
- Oil-producing states have historically received a 13% derivation of oil earnings, divided among the 36 states, local entities, and the federal government.
- Nonetheless, the federal government’s most recent tax reform plan aims to apply this derivation methodology to VAT. The change aims to provide a larger share of FAAC allocations to states that generate more VAT.
- Northern leaders and elites have been especially critical of this idea, claiming that the reforms could hurt their states by cutting their allocations.
In the meantime, additional increases in FAAC allocations may occur in the upcoming months as the federal government steps up its attempts to raise oil output.
