The Federation Account Allocation Committee (FAAC) disbursement to the three tiers of government rose to a four-month high in January, and is expected to increase in the coming months fuelled by the recent hike in VAT rate.
Analysts at Lagos-based Financial Derivatives Company in their monthly breakfast report for February said FAAC rose 12.61 percent on a monthly basis to N716bn in January.
This is for revenue generated in December.
Under the FAAC arrangement, revenue generated from sales of crude oil, Value Added Tax (VAT), corporate tax, etc. are shared among all three tiers of government based on a formula.
Most states in Nigeria depend on disbursements among the three tiers of government for at least 80 percent of their revenues, hence the increase in allocation in January, after FAAC fell to least 7-month low in December, will help fund their spending.
For 2020, FAAC is expected to increase in the coming months on the back of the increase in VAT to 7.5 percent which took effect in February.
Hence, revenue to be shared in March will likely see an increase as VAT component of income generated grows.
Analysts at FDC estimate an increase in revenue by N2.5trn.
A breakdown of January FAAC is expected to be published by the National Bureau of Statistics (NBS).
The existing sharing formula allocates 52.68 percent, 26.72 percent, and 20.60 percent of FAAC for FG, States (including Abuja) and local governments respectively under statutory allocation.
Eighty-five percent of VAT will go to states and local government to enable them meet obligations like payment of new minimum wage while 15 percent goes to FG.
In addition, states with mineral resources and oil also receive extra allocation based on the 13 per cent derivation principle.
In December, the Federal Government received N267.883 billion, the States received N172.569 billion, Local Government Councils got N129.972 billion, while the oil-producing states received N49.124 billion as 13 percent derivation mineral revenue.