Federal Government Proposes Drastic Reduction in FAAC Share: FG to Take 10%, States & LGAs 90%

In a significant policy shift, the Federal Government is proposing a dramatic overhaul of the revenue distribution formula from the Federation Account Allocation Committee (FAAC). According to Mr. Taiwo Oyedele, Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, the new proposal aims to allocate just 10% of FAAC funds to the Federal Government, with the remaining 90% going to states and local governments.

Oyedele made this announcement in a statement on his X (formerly Twitter) handle, highlighting that the plan represents a stark departure from the current sharing arrangement. At present, the Federal Government receives 52.68%, while states get 26.72%, and local governments receive 20.60%. The proposed formula shifts the financial power balance dramatically, giving states and local governments much greater control over national revenues.

Under the new proposal, Oyedele explained, the funds allocated to states and local governments would come with a clause stipulating that 60% of their share would be based on the principle of derivation—meaning states that generate more resources would receive a larger portion of the allocation. For example, if ₦100 is available for distribution from FAAC, the Federal Government would receive ₦10, the 36 states would equally share ₦36, and ₦54 would be allocated based on derivation, giving resource-rich states a significant advantage.

This shift is part of broader reforms aimed at overhauling Nigeria’s fiscal and tax system. Oyedele also emphasized that this redistribution is tied to efforts to streamline tax collection and eliminate the numerous “nuisance taxes” that complicate the current system. The Federal Government, he noted, had to make this concession to secure the support of states for a more centralized and efficient tax collection structure.

“The new approach not only simplifies tax collection but also lays the foundation for true fiscal federalism, providing states and local governments with greater autonomy over their revenues,” Oyedele remarked. He added that the reforms would grant sub-national governments more control over their finances and increase accountability in the management of locally generated revenue.

There are, however, lingering questions about whether the Federal Government will also reduce its share of personal income tax (PIT), which is currently collected by states. Oyedele indicated that the Federal Government has long aimed to centralize PIT collection, which could potentially generate up to ₦50 trillion annually. Under the new 10% allocation formula, the Federal Government would take ₦5 trillion from this revenue stream, with the remaining amount distributed to states and local governments.

In the meantime, the Federal Government plans to rely more heavily on internally generated revenue (IGR) from its Ministries, Departments, and Agencies (MDAs). Oyedele revealed that these MDAs are already generating close to ₦1 trillion monthly for the government, and with efforts to address loopholes and plug revenue leakages, this figure could grow significantly.

The proposed reforms, if fully implemented, could mark a bold step towards decentralizing Nigeria’s fiscal structure and promoting financial autonomy for states and local governments. However, much will depend on the details of the implementation process and whether all key stakeholders can agree on this new distribution framework.

As discussions between the Federal Government, states, and local governments continue, the full impact of this tax and revenue overhaul will be closely monitored in the coming months. These reforms could reshape the fiscal landscape in Nigeria, and their success or failure will likely set the tone for future economic policies.

For more updates, visit http://www.oblongmedia.net.