The revenue of the Federation Account earnings (FAAC) rose to N6.28 trillion in the second quarter of 2024, driven by significant collections from Value Added Tax (VAT), customs, and excise duties.
These sources dominated earnings within the federation account during the period, contributing 72.42% of the total revenue.
According to the Central Bank of Nigeria’s economic report, non-oil revenue accounted for N4.55 trillion, reflecting a 32.22% increase compared to the preceding quarter.
The revenue also exceeded the government’s target by 23.07% during the same period.
The increase was largely attributed to higher collections from the federal government’s independent revenue sources, VAT, and customs and excise duties.
Low Oil Revenue
While there was marginal growth in oil revenue, its contribution to FAAC in Q2 2024 was minimal, accounting for just 13.23% of the total allocation.
- In monetary terms, oil revenue contributed N1.73 trillion to FAAC during the period. However, the report noted that oil revenue fell short of the government’s target by 67.30%.
- This underperformance was primarily attributed to lower oil production, as Nigeria continued to struggle to meet its 2 million barrels per day (bpd) target set by the federal government.
- The report reveals that the country produced only 1.27 million bpd in Q2 2024, down from 1.3 million bpd in the first quarter. This decline in output is linked to persistent oil theft, illegal refining activities in the Niger Delta, and pipeline vandalism, among other challenges.
- Moreover, the low oil earnings, which previously served as the government’s primary revenue source, were offset by increases in VAT and duties collections.
It is noteworthy that oil revenue includes royalties, Petroleum Profit Tax (PPT), and upstream Corporate Income Tax (CIT) paid into the federation account.
What you should know
The shift from oil revenue to other sources of income in the Federation Account will indicate a different approach to FAAC allocation.
- Traditionally, oil earnings, which are distributed among the 36 states, local governments, and the federal government, included a 13% derivation for oil-producing states.
- However, the recent tax reform bill proposed by the federal government seeks to extend this derivation model to VAT. The reform aims to ensure that states generating more VAT receive a higher share of FAAC allocations.
- This proposal has sparked controversy and criticism, particularly from northern elites and leaders, who argue that the reforms could disadvantage their states by reducing their allocations.
Meanwhile, as the federal government intensifies efforts to boost oil production, there is potential for further increases in FAAC allocations in the coming months.
