A total sum of N1.35trn was shared by the Federal Government (N459.7bn), States (N461.9bn) and Local Government Councils (N337bn) at the Federal Account Allocation Committee (FAAC) meeting in July. The total sum, which is 18.3% higher than the previous month’s distributable revenue of N1.14trn, comprised distributable statutory revenue of N142.4bn, distributable Value Added Tax (VAT) revenue of N523bn, Electronic Money Transfer Levy (EMTL) revenue of N15.1bn, exchange difference revenue of N472bn, and exchange difference and augmentation of N200bn. 

According to the committee, Company income tax (CIT) and VAT increased significantly, while import and excise duties and EMTL increased marginally. On the other hand, petroleum profit tax (PPT), royalty on crude, rentals, and customs external tariff levies (CET) recorded considerable decreases.

Crude oil sales proceeds to the statutory account are the highest contributor to the FAAC allocations. Despite recent stability in the price of crude oil, massive crude oil theft and recurrent shut-ins at various crude oil terminals, triggered by vandalism and lack of maintenance, have led to a severe decline in crude oil production. The Supreme Court on Thursday ordered the federal government to henceforth pay a 20.6% allocation from the federation account directly to 774 local government accounts for the development of the LGAs.

Monthly FAAC disbursement has trended around N1.09trn levels since June last year. After over six months of back-and-forth negotiations between the federal government and organized labour, President Bola Ahmed Tinubu finally settled at a new minimum wage of N70,000 last Thursday. The 2024 budget assumes a total personnel cost of N5.8trn for the Federal Government. An increase in the minimum wage to N70,000 from the current N30,000 implies a 134% increase, which could raise personnel cost to N10.1trn using 2022 actual personnel cost as a base. At the state level, heavy reliance on FAAC allocation, which is inextricably linked to volatilities in crude oil prices amidst weak Internally generated revenues, would mean that many state governments may not be able to pay the new minimum wage, and many may default on wage payments when crude prices fall significantly as seen in the past.