• Sunday, July 21, 2024
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Cost of revenue collection surpass total FAAC disbursements to each state in January

Now that governors have so much money

Nigeria spent a total of N78.30 billion as a cost of revenue collection in January 2024, this is higher compared to the total amount disbursed by the Federal Account Allocation Committee (FAAC) to each of the 36 states and the six geopolitical zones in the country.

According to a recent report published by Agora Policy, the revenue collection agencies which include: the Federal Inland Revenue Service, Nigeria Customs Service, and the Nigerian Upstream Petroleum Regulatory Commission received N43.35 billion, N18.68 billion, and N16.27 billion respectively in January from a N2.07 trillion gross revenue In January 2024.

Read also: FIRS, NCS combined N78.3bn FAAC allocation in January, higher than any Nigerian states – Report

The report showed that none of the 36 states of the Federation received up to this amount as federation allocation, as the state with the highest gross allocation for the month was Delta State which received N39.59 billion.

This is said it indicate that FIRS not only received an amount more than what each of all the 36 states but also got 109.49 per cent of allocation of the state with the highest gross allocation.

Also, the gross allocations to the six geo-political zones for the same month stood at N56.60 billion for the North-East; N55.58 billion for the North-Central; N76.09 billion for the North-West; N47.75 billion for the South-East; N141.85 billion for the South-South; and N86.60 billion for the South-West.

The cost of collection is usually deducted at the monthly meeting of the Federal Account Allocation Committee (FAAC) before the federally collected revenues are shared with the three tiers of government and other statutory recipients.

”This shows that for the month, the cost of collection received by the three agencies (N78.30bn) was higher than the gross FAAC allocations to each of four geo-political zones in the country: North East (N56.60bn), North-Central (55.58bn), North-West (N76.09bn) and South-East (N47.75bn).

”The South-South and South-West got more than what the three agencies received only on account of 13% derivation for the oil-producing states and the allocation of N21.28bn as the net allocation to Lagos State for Value Added Tax (VAT),” it stated.

This is aimed at creating a mechanism for the revenue-collection agencies to get reimbursed for the cost they incur in carrying out tasks on behalf of the Federation and to ensure that agencies are incentivized and resourced enough to effectively discharge their mandates.

However, the report indicated that the issue with the cost-of-collection arrangement is not just because the agencies are now collecting more money than most states or that they are getting a higher proportion of gross revenue, but the increase in revenue is not necessarily a product of increased efforts.

“The agencies are getting more allocations at the expense of others, including states and zones that have a high number of citizens to cater for and a slew of challenges to tackle.

“‘Revenue allocation is a zero-sum. What is available to the agencies is what is denied by the three tiers of government. Giving agencies a portion of the revenue that passes through them has created a perverse incentive where they prioritise revenue collection and de-emphasise the other parts of their work even if at a cost to the larger economy.

”It is common for these agencies to be trumpeting how much money they have contributed to the Federation, even when they are not doing more than computing and assessing how much is due. The NCS regularly measures itself by the amount of money it is generating and rarely talks about its important mandates on border protection and trade facilitation. What is rewarded is what gets done.

“Most government agencies want to become commission agents or revenue-generating agencies. This distracts them from their core mandates and leads to the imposition of heavy costs on individuals and businesses.

” Another problem is that this approach shifts scarce resources away from where they are needed the most at a time the country has enormous developmental challenges. It is not unusual for these agencies to vote huge sums for things like new office buildings, cars, trainings and travels, and staff welfare,” it stated.

This is also as the presidential fiscal policy and tax reforms committee, led by Taiwo Oyedele recently proposed that the cost of tax collection by government agencies be reduced to 1 per cent.

Oyedele noted that Nigeria’s cost of collection was high, ranging from 4 per cent to 35 per cent at present.

“Agencies should not collect taxes; they don’t have the competence. For example, the FIRS collected N700 billion last year for the tertiary education trust fund (TetFund).”