Federal Government Proposes Major Shift in FAAC Distribution, Cuts Own Share to 10%

The Nigerian federal government has announced plans to reduce its share of the Federation Account Allocation Committee (FAAC) funds, redirecting a larger portion to states and local governments.

Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, Mr. Taiwo Oyedele, shared the proposal on Sunday via his X (formerly Twitter) account. Under the new plan, the federal government would take just 10% of FAAC allocations, with 90% going to states and local governments. This marks a substantial change from the current formula, which allocates 52.68% to the federal government, 26.72% to states, and 20.60% to local governments.

Oyedele explained that the new structure aims to empower sub-national governments by introducing a clause that ensures 60% of their share is based on the principle of derivation. This provision would direct more resources to regions where revenue is generated, enhancing their fiscal autonomy.

The reforms are part of a broader strategy to streamline Nigeria’s tax system, eliminate inefficient taxes, and centralize tax collection. Oyedele highlighted that the federal government is making this concession to secure state cooperation for a unified and more efficient tax collection process.

“This approach simplifies tax collection and sets the stage for fiscal federalism, granting states and local governments greater control over their revenues,” Oyedele noted.

He described the reforms as a bold move towards decentralizing revenue collection and fostering a more balanced fiscal structure in the country. Oyedele added that the full effects of the proposed changes would be carefully monitored as discussions with state and local governments progress.