States may face salary crisis as FAAC drops to four-year low, sheds N125bn

Zainab-Ahmed (c) Businessday

Some states are set to face fresh economic challenges as the Federal Allocation has dropped to a four-year low, Saturday PUNCH has learnt.

In January, the Federation Accounts Allocation Committee shared the sum of N574.66bn to the Federal Government, states and local government councils. The amount shared in January is lower than the N699.82bn disbursed in December 2021.

This fall in FAAC allocations follows the Federal Government’s announcement of its plans to deduct N950bn for the payment of fuel subsidy from allocations due to states in 2022.

Details of the allocations for January are contained in a communiqué issued at the end of a virtual meeting of the FAAC for February 2022 released on Thursday night.

The N574.66bn total distributable revenue comprised distributable statutory revenue of N291.40bn, distributable Value Added Tax revenue of N178.06bn and Exchange Gain of N5.202bn and Non-Mineral Revenue of N100bn.

In January 2022, the total deduction for the cost of collection was N25.421bn and the total deductions for statutory transfers, refunds and savings was N92.767bn. The balance in the Excess Crude Account was $35.36m.

The communiqué confirmed that from the total distributable revenue of N574.668bn; the Federal Government received N204.580bn, the State Governments received N179.251bn and the Local Government Councils received N131.878bn. A total of N58.959bn was shared to the relevant states as 13 per cent derivation revenue.

The distributable statutory revenue of N291.4bn was available for the month. From this, the Federal Government received N122.749bn, the state governments received N62.260bn and the local government councils received N48bn. The sum of N58.391bn was shared with the relevant states as 13 per cent derivation revenue.

In the month of January 2022, the gross revenue available from the Value Added Tax was N191.2bn. This was lower than the N201.255bn available in the month of December 2021 by N10.033bn.

The sum of N5.507bn allocation to NEDC and N7.649bn cost of collection were deducted from the N191.2bn gross VAT revenue, resulting in the distributable VAT revenue of N178.06bn.

From the N178.066bn distributable VAT revenue, the Federal Government received N26.710bn, the state governments received N89.033bn and the Local Government Councils received N62.32bn.

According to the communiqué, in the month of January 2022, Companies Income Tax, Petroleum Profit Tax, and Oil and Gas Royalties decreased significantly while Value Added Tax, Import and Excise Duties decreased marginally.

Economists told SUNDAY PUNCH that allocations to the three tiers of the government would continue to decline as long as the cost of fuel subsidy was deducted from the Federation Account.

This, they said, would have dire consequences on Nigerians as it would affect the capacity of the state government to pay salaries and that of the Federal Government to develop capital infrastructure.

A development economist, Aliyu Ilias, who spoke via a telephone interview,  said, “Well, the fact is that the Federal Government lacks foresight.

“They know that our revenue is dwindling right from the COVID 19 period. We have been having a revenue problem and the government even had to introduce a bailout to help states.

“Now that FAAC allocations are declining, there is no doubt that some states will find it hard to pay salaries. This will lead to untold hardship for Nigerians as their purchasing power will be diminished.”

He added that the conflict between Ukraine and Russia was driving a surge in the price of fuel which invariably means that the cost of paying for fuel subsidy would also rise.

Ilisa advised the government to seek other sources of revenue to prevent the negative impacts of a steady decline in FAAC allocations.

Another economist and Professor of Economics at the Olabisi Onabanjo University, Ago-Iwoye, Ogun State, Sheriffdeen Tella,  strongly argued for the removal of fuel subsidy to cushion its impacts on allocations to the three tiers of government.

He also called on states to devise other ways of generating revenue instead of relying on allocations from the Federation Account.

Tella said, “Yes, it might reduce the ability of state governments to pay salaries at the end of the month.  But it shouldn’t be so, states are not meant to rely heavily on allocations to carry out their operations. They should be able to generate enough revenue to take care of their members or look for ways to improve their revenue.”

But the Nigeria Labour Congress said the rise in the price of crude in the world should be an advantage to the country.

Speaking with one of our correspondents on Saturday, the Deputy President, Nigeria Labour Congress, Joe Ajaero, noted that the only way the rise in crude could be at a loss to Nigeria was if the country was not selling crude and was buying refined petroleum products.

While warning against the reduction in FAAC allocation, he asked the Nigerian government to come up with another excuse.

He said, “It is a lie. Nigeria is still selling crude. If we are selling, even if we are importing finished products, if there is a rise in the price of crude it means Nigeria will make more money through the sale of crude.’’

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