FAAC revenue reaches N6.28 trillion in Q2 2024, with VAT and import duties balancing out reduced oil income

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The revenue from the Federation Account (FAAC) rose to ₦6.28 trillion in the second quarter of 2024, primarily driven by substantial collections from Value Added Tax (VAT), customs, and excise duties. These sources accounted for 72.42% of the total revenue during this period.

 

According to the Central Bank of Nigeria’s economic report, non-oil revenue reached ₦4.55 trillion, reflecting a 32.22% increase compared to the previous quarter. The revenue also exceeded the government’s target by 23.07% during the same timeframe. This increase was largely due to better collections from the federal government’s independent revenue sources, VAT, and customs and excise duties.

 

While there was slight growth in oil revenue, its contribution to FAAC in Q2 2024 was minimal, making up only 13.23% of the total allocation. In monetary terms, oil revenue contributed ₦1.73 trillion to FAAC during this period. However, the report highlighted that oil revenue fell short of the government’s target by 67.30%.

 

This shortfall was mainly due to lower oil production, as Nigeria struggled to meet its target of 2 million barrels per day (bpd) set by the federal government. The country produced only 1.27 million bpd in Q2 2024, a decline from 1.3 million bpd in the first quarter. This drop in output is attributed to persistent oil theft, illegal refining activities in the Niger Delta, and pipeline vandalism, among other challenges.

 

Despite the low oil earnings, which traditionally served as the government’s primary revenue source, these losses were offset by increases in VAT and duty collections. It’s important to note that oil revenue encompasses royalties, Petroleum Profit Tax (PPT), and upstream Corporate Income Tax (CIT) paid into the federation account. 

 

The shift from oil revenue to alternative income sources in the Federation Account suggests a different approach to FAAC allocation. Historically, oil earnings, distributed among the 36 states, local governments, and the federal government, included a 13% derivation for oil-producing states. However, a recent tax reform bill proposed by the federal government aims to extend this derivation model to VAT, ensuring that states generating more VAT receive a larger share of FAAC allocations.

 

This proposal has sparked controversy and criticism, particularly from northern elites and leaders, who argue that the reforms could disadvantage their states by reducing their allocations. Meanwhile, as the federal government intensifies efforts to boost oil production, there is potential for further increases in FAAC allocations in the coming months.

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