Breaking down the Nigerian Budget System and the REVENUE it generates

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The Nigerian Government will spend 13.5 Trillion Naira in 2021. President Buhari Muhammadu signed the 2021 Appropriation ACT into Law on December 31st 2020.

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Now you might always wonder, how does Federal, State and Local Government make and share our MONIES?

How does the Federal Government GENERATE REVENUE (MONEY) it spends to execute its annual budget?

How does State Governments and Local Governments GENERATE REVENUE (MONEY) it gets from the Federal Government minus their Internally Generated Revenue Drive?

Nigeria has a complicated BUDGET SYSTEM but the Nigerian Global Affairs Council (NIGAC) will simplify the details for the benefit of Nigerians.

Nigeria has ONE FAT WALLET managed by the Accountant General of the Federation called the Federation Account (FA) for short. The Federation Account is owned by the 3 TIERS of Government (Federal, State and Local Government).

87% of the REVENUE Nigeria makes from sales of OIL goes to this Federation Account (FA) – The balance 13% is shared to OIL PRODUCING STATES, remember DERIATIVE FORMULA right, the much-talked about 13% of OIL MONEY that goes directly to States that produces the OIL WEALTH.

100% of NON-OIL revenue also goes to the FEDERATION ACCOUNT except REVENUES such as PAYE from Armed Forces, Nigerian Police Force, Federal Capital Territory Residents, and those who work in Diplomatic Foreign Services.

There is also cost of COLLECTION by some agencies like the FIRS and Customs which is a percentage fraction of the REVENUE they generate and send to Government Coffers (This one breeds corruption).

See the source image

The primary contributors to the Federation Account are the NNPC (crude oil sales), Department of Petroleum Resources (Collects Proceeds from oil block sales, royalties, gas flaring penalties, etc), Federal Inland Revenue Service (Collects PPT, VAT, CIT, EDT) and Customs Service (Collects Customs/Excise duties)

There are a lot of other complicated deductions that takes place in the Federation Account before the next steps are made.

Now once all these MONIES has entered this Federation Account and taken a CHILL for a very short while, this is where the STORY gets more INTERESTING.

Of that total chunk of MONEY generated into the Federation Account, Local Governments gets 20.60% of that money, State Governments gets 26.72%. The balance percentage of 52.68% is divided into 5 different accounts operated by the Federal Government.

It is divided as follows:

FG Consolidated Revenue Account: 48.5% (of Federation Account sharing), FG Development of Natural Resources Account: 1.68%, FG Share of Derivation + Ecological Fund: 1%, FG Stabilization Fund: 0.5% and Federal Capital Territory: 1%.

Take note of the FG Consolidated Revenue Account (CRF) that has 48.5% – This is EXACTLY where the ANNUAL Nigerian Budget and the money Government spends is gotten from, anything outside that FG CRF is ILLEGAL except Government is taken a Legislative approved LOAN or selling any of its assets.

That 7.5% VALUE ADDED TAX that all Nigerians get to PAY whenever they purchase stuffs in the market is a SPECIAL TAX of its own CLASS. Of that monies generated, the Federal Government only has 15% cut that goes to the FG CRF Account, all 36 states share 50% of VAT generated whilst Local Government shares 35%, now that is a lot of money, it is also ironical that Northern States forbid the sales of ALCOHOL in their states but share heavily from the alcohol induced VAT Nigerians contribute to the revenue they generate for their annual budgets. So, we see that States are the BIGGEST WINNERS in the 50% increment that the VAT was premised upon. This Federal Government Consolidated Revenue Fund (CRF) also receives, by way of inflows, a portion of revenues generated by Federal Govt agencies – JAMB, NPA, NIMASA, NIPC, NIPOST, CAC, NCC etc. Remember that special revenue that does not get into the Federation Account (REVENUES such as PAYE from Armed Forces, Nigerian Police Force, Federal Capital Territory Residents, and those who work in Diplomatic Foreign Services.), I believe it also goes straight to the FG Consolidated Revenue Fund.

 The Federal Capital Territory is a special creation so has its own revenue generation formula:

It gets 1% out of the Federal Government Consolidated Revenue Fund

It gets 1% out of the 15% VAT that goes to the Federal Government CRF

It also generates revenue internally through EMPLOYEES who reside in Abuja through the PAYE

Inside this Budget there are some statutory provisions – mandatory direct transfers to the Federal Legislature (National Assembly), Federal Judiciary (Nigerian Judicial Council), Universal Basic Education Commission (2% of CRF), Basic Health Care Primary Fund (1% of CRF), Niger Delta Development Commission, Public Complaints Commission, Independent National Electoral Commission, National Human Rights Commission.

So, in summary, the Nigerian Budget is prepared on the basis of 52.67% of the original revenue we generate as a Nation – 52.67% for 200 Million Nigerians. Very weird and unrealistic seeing the times we are currently in. Is it not time for States to begin to seek ways to internally generate revenues based on its comparative advantage? Our Federal Government is bogged down with unnecessary revenue generation and sharing.

Kindly share your thoughts to policyposition@nigac.org

#PublicPolicy #PolicyInsights #PolicyDataBank #PolicySolutions #AnnualBudget #FederalBudget #NIGAC #Think-Tank

This summary is simplified by the Nigerian Global Affairs Council (NIGAC) – A Technology-based and Digital Media-driven Public Policy and Evidence-based Research Think-Tank that simplifies Government Policy Positions at all times.

 

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