Finance Minister, Kemi Adeosun has advocated for reforms in the way Federal Accounts Allocation Committee (FAAC) income is spent. Mrs Adeosun made the remarks at a FAAC retreat held in Akwa Ibom, in a speech presented on her behalf by the Permanent Secretary Federal Ministry of Finance, Dr Mahmoud Isa-Dutse
What is FAAC ?
FAAC is a joint committee consisting of representatives of the Federal, State and Local governments. The committee meets monthly during which revenues are shared. Sources of income for FAAC include oil revenue and taxes, customs and excise taxes, company income taxes (CIT), any sale of national assets, and surpluses from state-owned enterprises.
Under the present formula, the Federal government gets 52.68% of all revenue, while states and local governments get 26.72% and 20.60% respectively. Revenues from Value Added tax (VAT) are shared differently, with the Federal Government getting 15%, States 50% and Local Governments 35%.
Why reforms are necessary
Mrs Adeosun may be making the observation based on the recent financial challenges faced by all tiers of government. A drop in crude oil prices and production volumes lead to a steep fall in revenue. The short to medium term outlook for the oil industry by several analysts is that oil prices may remain at current price, suggesting low revenues may be for quite a while
States and local governments were unable to meet salary and pension obligations, necessitating a bail out from the Federal Government. The FG itself has had to increase borrowing in order to meet budgetary estimates. There have been allegations that some of the states may have mismanaged the funds.