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FAAC: Re-adjusting to The New Norm


Friday, December 29, 2017 03:48PM/ Proshare Research 

The Federation Account Allocation Committee (FAAC) disbursed the sum of N523.15 billion among the three tiers of government for the month of November 2017. The amount disbursed in the month of November fell by 6% when compared to that of the month of October 2017. However, on a year-on-year basis it reflects an 18.56 % increase with an average of N505 billion per month. The improvement in gross statutory allocation was due to the increase in oil receipts which have seeped positively into FAAC.  

Fig 1: FAAC from Dec 2016 to November 2017
Proshare Nigeria Pvt. Ltd.
 Source:  NBS

Disbursed FAAC in the same period was composed of statutory allocation of N412 billion, value added tax’s (VAT) of 89.71 billion, NNPC refund of N30 billion and bank charge of No.944 billion. Earlier trend suggests that the curve always attain the headers position in July and September, largely supported by revenue inflow from company income taxes (CIT) in those months under review. The follow up is a shoulder position in November, as the earlier support gives way. 

Although value added taxes in November rose by 7.3% compared to the previous month of October, such increase was offset by a leaner NNPC refund  and  how ? NNPC refund in the month of October stood at N 50.81 billion compared to N3o billion in the month of October.  

The contribution of Value added taxes in the month of November, rose by 7.6% and 18.69% compared to previous month and on a 12month basis (YoY). Thus, the VAT generated in October remains the highest in this current horizon. In 2017 so far, Value Added Taxes has contributed N887.93 billion to the federal allocation purse, making it 14.29% of the revenue composite. 

Fig 2:  Value added tax’s disbursed among the tiers from Dec 2017 to November 2017
Proshare Nigeria Pvt. Ltd.
 Source: NBS

Even though oil price has risen, economics of scale have not reached optimality with regards to oil contribution to statuary allocation underpinning a new norm whereby fiscal capacity remains blunt, even though oil price has recovered.  

Thus, the increase in ancillary income other than oil receipt has substantial impacted in influencing the curve. The occurrence of an irregular pattern to the FAAC curve is also inevitable, which has been identified by many analysts.      

Proshare Nigeria Pvt. Ltd.

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