Increase in Monthly FAAC Payout is Alright for Some States

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Tuesday, August 09, 2016 9:42am /FBNQuest Research

The FGN has made available three programmes of debt and fiscal relief for state governments since July 2015. It was driven by the sharp fall in distributions by the Federation Account Allocation Committee (FAAC) as a direct result of the slide in the oil price since mid-2014.

Most states had accumulated arrears in salary and pension payments as well as in their dues to suppliers and contractors. The FGN has been pushing the states to diversify their own economies as it is attempting with the nation’s.

Its favoured way forward is the growth of internally generated revenue (IGR).

This, of course, is easier for some states than others. Data from the National   Bureau of Statistics (NBS) show IGR collected by Lagos in a five-year period (2010-14) at N1.08trn (US$3.5bn). Only two other states (Rivers and Delta) managed more than N100bn, and for Borno the figure was as low as N12bn. (The NBS series is not compatible with the CBN’s.)

It helps if a state has a large base of personal taxpayers. Lagos collected N159bn from PAYE over the period and estimates that nine million taxable individuals live within the state, of which five million are said to be compliant.

Other taxes can be levied too. We give the examples of road tax, gaming tax, levies on lotteries, restaurant consumption tax and stamp duty.

At the other end of the spectrum to Lagos, an Abuja-based consultancy has categorized 18 states as having limited prospect of expanding their low IGR and as at risk of not surviving six months without the monthly FAAC payouts.

We are pleased to end on a positive note. The FAAC distribution from June revenues was the highest for 12 months (Good Morning Nigeria, 28 July 2016), amounting to N559bn. An official at the committee’s meeting indicated that the size of the distribution would allow state governments to meet their current salary obligations.

This could explain why the most recent programme of relief granted by the FGN, the N90bn package of conditional loans at an annual interest rate of 9%, will not be disbursed when the FAAC distribution exceeds N500bn.

Both the federal finance minister and the chair of the Federal Inland Revenue Service have insisted that non-oil revenue collection is on an upward trajectory. If this proves the case, a corner of sorts would be turned in that arrears would no longer accumulate.

However, this should not absolve the states from their pursuit of development and increased IGR.

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