If the monies were actually shared to states equally, your state would have received N6.4 billion. Your local government would have also had a minimum of N118 million or a maximum of N741.8 million.
FAAC Allocation To State, Criteria
A recent analysis of the FAAC distribution to states and local governments of the federation in the last 12 years provides interesting insights into the revenue distribution matrix of the country.
FAAC distributes revenue from the federation account thus: the federal government 52.68 per cent, the 36 state governments share 26.72 per cent, while 20.60 per cent is given to the 774 local governments in the country. It also distributes the revenue from Value Added Tax (VAT) thus: the federal government, 15 per cent; state governments all share 50 per cent; and the local governments share get 35 per cent.
This is the reason why these five highly populated states – Lagos, Kano, Kaduna, Katsina, and Borno rank among the top 10 beneficiaries from the FAAC allocation till between 2007 and 2018, as seen in the chart below.
Within this period, Lagos, Kano, Kaduna, Katsina received N1.10 trillion, N808.10 billion, N627.93 billion and N608.57 billion respectively. Borno, the least on the top 10 got N601.66 billion.
This is the only reason why these other five states, namely, Akwa Ibom, Rivers, Delta, Bayelsa, and Ondo, rank among the top 10 earners too. As shown in the chart above, Akwa Ibom, Rivers, and Delta got N2.36 trillion, N2.26 trillion, and N1.86 trillion in that order while Bayelsa and Ondo had N1.48 trillion and N731 billion respectively.
FAAC revenue cum development of individual states
While the K states – Kano, Kaduna and Katsina seem to walk away from FAAC each month with big bags, thanks to their population, it all amounts to little, considering the per capita (or revenue per head) implication.
These statistics show that increasing state population without developing individual state resources will not suffice in the long run.
Each state in Nigeria has an area of comparative economic advantage that could be tapped into, both in human and natural resource, to create the wealth of their own. Higher productivity, whether in the exploration of mineral resource or through full employment of manpower creates higher income levels for the residents of a state, and this, in turn, leads to higher government revenues from corporate and income taxes.
FAAC revenue is a cue to states to grow their IGR
One unfortunate twist for the FAAC revenue big bags is that they fail to live up to their ranks in terms of their corresponding IGRs. For instance, six of the oil-producing states could not generate internally half of the revenue they each received from the federal account in 2017 – Delta (47%), Abia (38%), Ondo (24%), Imo (18%), Bayelsa (12%), Akwa Ibom (11%).
For a country as Nigeria, with 65 per cent federal revenue from oil sales, whenever international oil prices drop, federal revenue drops significantly, causing the fiscally-dependant states to fall into administrative distress. Right thinking state administrators should reckon that their states are just mere political departments of the federal government except they have their own means of economic sustenance, as the country Nigeria does.
Five states show great promises of financial independence based on the ratio of their internally generated revenue to FAAC revenue. Ogun, Osun, Cross River, Kwara, and Enugu who are ranked among the least 10 earners from FAAC intriguingly surpassed the 50 per cent line, with Osun and Ogun amazingly leading with 112 per cent and 286 per cent respectively.
Industry experts and economic analysts have decried the reliance of states on the monies that come from the federation accounts, which seem to weaken the drive to generate income from other resources within the states.
“most of the 36 states are not ready to develop their agricultural sector, due to the monthly revenue allocation they receive from the federation account. The ‘cheap’ revenue has made them complacent because the monthly allocation seems like a windfall to the states since it is not generated by them.”.
However, it is pertinent for states to look beyond the Pay As You Earn tax (PAYE) which literally comes from public servants. A breakdown of the 2017 IGR revealed that most of the states made the bulk of their revenue from PAYE which only reflects the formal sector of the states.
Besides, it must prioritise human capital development in the areas of health, education and entrepreneurship, and as well as prohibit the culture of corruption, to conserve its hard-earned revenues