Last Updated on 7 November 2024 by Naijadazz
FAAC (Federation Account Allocation Committee) allocations between August and September 2023 reveals important trends in Nigeria’s revenue streams, bolstered by various factors like VAT growth, statutory revenue, and the Electronic Money Transfer Levy (EMTL). The increases in total allocations highlight the evolving fiscal health of the nation, with month-to-month fluctuations reflecting broader economic activities and policy impacts. This detailed report examines the financial changes from August to September, with expanded statistical insights on each revenue component and its contribution to the nation’s total distributable revenue.
Overall Revenue Allocation
In August 2023, FAAC distributed N1.1 trillion in total to Nigeria’s Federal Government, State Governments, and Local Government Councils. By September, the total allocation had increased to N1.2 trillion, a 9% rise, or N100 billion. This growth demonstrates an improvement in Nigeria’s revenue collection capabilities, likely supported by heightened VAT contributions and an uptick in statutory revenues. The increase from August to September represents the fourth month in 2023 that FAAC has seen a month-over-month rise in allocations, suggesting a steady but gradual fiscal recovery.
Statutory Revenue
Statutory revenue, comprising income from oil, customs, and company income tax, forms the backbone of Nigeria’s distributable revenue. In August 2023, statutory revenue stood at N357.4 billion, while September saw it rise to N400 billion. This 11.9% increase (or N42.6 billion) month-over-month highlights a return to positive growth for this critical revenue source, which has fluctuated throughout the year due to global oil market conditions.
Over the first three quarters of 2023, statutory revenue allocations have averaged around N370 billion per month, with September’s figures exceeding this average by 8%. This growth may stem from a combination of improved oil production, favorable pricing, and stricter tax compliance in the non-oil sectors. The uptick indicates stronger revenue inflows from the nation’s petroleum sector, which still contributes significantly to statutory revenue through royalties and taxes.
Value Added Tax (VAT)
VAT revenue is a critical and relatively stable source of income, providing consistent returns. In August, VAT accounted for N321.9 billion of the FAAC allocations, which increased to N360 billion in September, reflecting an 11.8% rise or an increase of N38.1 billion. Year-to-date, VAT has maintained an upward trend, with September marking one of the highest monthly collections in 2023. VAT collections in 2023 have seen an average month-over-month increase of 9%, largely driven by intensified efforts to enforce VAT compliance and growing economic activity in retail and service sectors.
This increase reflects expanding consumer spending, possibly influenced by modest economic recovery and policy measures aimed at broadening the VAT base. As VAT now represents over 30% of total FAAC allocations, the Nigerian government’s reliance on consumption-based taxes is apparent, and further enhancements in VAT collection could offer long-term stability.
Electronic Money Transfer Levy (EMTL)
The EMTL, which taxes digital transactions, has consistently grown as digital payment adoption rises across Nigeria. In August, EMTL collections contributed N14.1 billion to total revenue, increasing to N15 billion in September, a 6.4% rise (or N900 million). While modest, this month-over-month increase indicates a growing contribution from Nigeria’s digital economy. As more citizens transition to digital financial services, EMTL is expected to continue growing, with year-to-date EMTL revenue rising by an average of 5.5% monthly.
Cumulatively, the EMTL has added nearly N135 billion to FAAC allocations for the year, supporting local governments and enabling greater investment in digital infrastructure. Continued expansion in digital payment systems and consistent enforcement of EMTL could further increase this revenue stream, providing valuable support for government funding.
Exchange Difference Revenue
The exchange difference revenue, derived from foreign exchange gains, has proven volatile but remains an important income source, especially given Nigeria’s exposure to currency fluctuations. In August, exchange difference revenue was N229.6 billion. Although the exact figure for September was lower, this component still made a significant impact. Since May 2023, exchange difference revenue has averaged N210 billion monthly, with wide fluctuations depending on the central bank’s exchange rate policies and currency market conditions.
This volatility underscores the sensitive nature of exchange difference revenue. Given recent economic reforms and currency stabilization efforts, a more predictable revenue stream may develop in the long run. Still, exchange difference revenue remains a crucial but unpredictable component, with September’s slight reduction reflecting the impacts of forex adjustments and lower currency gains.
Augmentation Fund
The augmentation fund supports monthly allocations when standard revenue sources are insufficient. In August, this fund contributed N177.1 billion to the total distribution, but by September, this amount was reduced. The decrease reflects FAAC’s reliance on growing statutory and VAT revenues, which provided additional funding without needing extensive augmentation.
From January to September, the augmentation fund has contributed approximately N700 billion to FAAC allocations, filling shortfalls in months of lower statutory revenue or VAT collections. This trend indicates the government’s efforts to stabilize monthly distributions and ensure consistent funding across government tiers, even in times of fluctuating oil prices or economic volatility.
Distribution Across Government Tiers
Each level of government in Nigeria receives allocations according to a specific formula, and September’s increased revenue translated into higher disbursements across all tiers.
- Federal Government: In August, the Federal Government’s allocation was N431.2 billion, which increased with the higher total revenue in September. The rise in statutory and VAT revenues provided more funds for federal projects and debt servicing, which constitutes the majority of federal expenditure.
- State Governments: State Governments received N361.2 billion in August. With the enhanced total allocation in September, state-level funding increased, supporting state-specific programs and local infrastructure projects. States saw approximately a 10% month-over-month increase in funds from FAAC.
Overall, these increases help support government programs at all levels, driving investment in public services and infrastructure. The Federal Government continues to be the largest recipient, with approximately 40% of total allocations, while state and local governments combined receive around 60%.
Derivation Revenue and Special Allocations
The 13% derivation principle applies to oil-producing states, ensuring they receive additional funds to address the specific environmental and infrastructural needs associated with oil production. Both August and September saw steady allocations through the derivation fund, contributing N134 billion in August alone. Since January, derivation funds have amounted to nearly N1 trillion in cumulative allocations for 2023, underscoring their role in regional equity and development.
These derivation funds support various development projects and help offset environmental degradation, benefiting oil-rich states. Special allocations from NNPC’s savings for oil-producing states added a further N50 billion in September, ensuring these regions receive the necessary funding for ongoing projects.
Sector-Specific Revenue Drivers
FAAC allocations are influenced by sectoral trends, with each major revenue component shaped by specific economic activities and policies.
- VAT and Retail Activity: The 11.8% increase in VAT revenue from August to September underscores the Nigerian government’s success in enforcing VAT compliance. The service and retail sectors are primary drivers, with consumer spending remaining strong. Policy shifts and improved tax enforcement measures are likely contributors, with VAT revenue expected to continue growing at around 10% monthly as compliance improves.
- Oil Revenue and Global Market: Statutory revenue, driven largely by oil-related taxes, benefited from stable oil prices and consistent production levels. September’s 11.9% increase suggests improved output, which could correlate with government incentives to boost oil production. Petroleum revenues make up approximately 65% of statutory collections, with oil-price stability in the range of $70-$80 per barrel supporting Nigeria’s fiscal health.
- Digital Financial Transactions: The EMTL continues to benefit from Nigeria’s expanding digital economy. Financial institutions and telecommunications companies have driven monthly EMTL growth of approximately 5.5% in 2023, as more Nigerians shift to digital payments. Government initiatives promoting cashless transactions contribute to sustained growth, with EMTL now a reliable source of funding.
- Exchange Rate and Currency Stability: Exchange difference revenue fluctuated, highlighting its sensitivity to forex markets. August and September’s revenues reflect an average contribution of N215 billion monthly in 2023, often covering shortfalls from other sources. Exchange rate stability is essential for predictable revenue, and further stabilization efforts may reduce the volatility seen in exchange difference income.
