Revenue distribution in Nigeria is done according to a stipulated formula across the tiers of government and statutory entities (vertical) and among the States (horizontal). Revenues shared by the Federation Account Allocation Committee (FAAC) include oil and gas revenue as well as non-oil revenue from Value Added Tax, Customs Duties and Company Income Tax.
These revenues are shared after the necessary costs of collection by the respective agencies are deducted. In addition, each tier of government has its own independent or internally generated revenue which is added to the portion received from FAAC.
These total revenues are therefore applied to fund governments’ recurrent and capital expenditures as approved in their respective annual budgets. When expenditures exceed revenue, as is often the case, deficits arise which can be financed through any or a combination of foreign and domestic borrowing, privatisation proceeds, project-tied loans, grants and other related means.
Nigeria has always faced many challenges in its finances. A major one is the country’s over-reliance on oil and gas exports as a major source of government revenue. This makes the government’s fiscal operations susceptible to fluctuations in global crude oil prices.
Other challenges include a limited tax base arising from the country’s large informal sector that is not fully captured in the tax system as well as general revenue leakages. These often make it challenging for the government to generate enough revenue to fund its budget.
To address these challenges the Nigerian government has implemented several policy measures. These include the introduction of the Integrated Payroll and Personnel information system (IPPIS), conceptualised in 2006 and approved in 2010 with the objective, among others, of centralising salary payments and reducing leakages.
In the same vein, the Government Integrated Financial Management System (GIFMIS) was also introduced to assist the Federal government in improving the management, performance and outcomes of Public Financial Management (PFM).
Since 2015, there has also been an intensified effort to increase the contribution of solid minerals to the federation account. Another policy initiative towards managing government finances was the implementation of the Treasury Single Account in September 2015. Before this time, the effort to consolidate government multiple accounts into a single one was not duly implemented.
Beginning also in 2019, the government commenced the implementation of a Strategic Revenue Growth Initiative (SRGI) for sustainable and diversified revenue generation to raise the country’s revenue-GDP ratio from around 7% to 15% in 5 years.
This has led to the introduction of several tax and revenue collection reforms, many of which are contained in the relevant Finance Acts. For instance, the VAT rate was raised from 5% to 7.5% in the 2019 Finance Act and efforts have also been made to introduce a tax on carbonated drinks and some luxury items.
The federal government has also made efforts at integrating the budgets of selected Government-Owned Enterprises (GOEs) into its budget from 2019 for transparency. The budgets of nine (9) GOEs were integrated in 2019, ten (10) in 2020, sixty (60) in 2021 and sixty-three (63) in each of 2022 and 2023.
Hence, the relevant section of the book, “Nigeria in Figures” presents insights into the federation account, including sources of revenue, the relative contribution of each source as well as distributions in FAAC.
Also presented are trends of Federal government revenue and expenditure by components as well as the comparison between the budgeted and actual government spending. Additional information on public debts and their structure are also presented.
