Chairman of the Alliance for Economic Research and Ethics Ltd/GTE, Dele Oye, has accused the Federal Government of retaining a substantial portion of the Federation Account revenue before distributing funds to states and local councils, saying deductions at source continue to weaken subnational finances.

Reacting to the Federation Account Allocation Committee (FAAC) disbursement for May 2026, concluded in June, Oye said Nigeria generated gross revenue of N3.4 trillion during the period, but only N2.3 trillion was made available for distribution among the three tiers of government.

According to him, the remaining N1.1 trillion, representing 32 per cent of gross revenue, was deducted at source through various interventions and other charges before the balance of 68 per cent was shared among the federal, states and local governments.

“FAAC disbursement for May 2026, concluded in June 2026, reveals a complex fiscal picture characterised by nominal revenue growth juxtaposed with significant structural vulnerabilities. Gross revenue reached N3.4 trillion, a 6.9 per cent month-on-month increase from April 2026.

“Of the gross revenue, only N2.3 trillion (68 per cent) was distributed among the three tiers of government, while N1.1 trillion (32 per cent) was deducted at the source. This high deduction rate, driven primarily by intervention funds, effectively recentralises fiscal resources and constrains subnational fiscal capacity,” he said.

Oye argued that the distribution pattern highlighted “structural imbalances” in Nigeria’s fiscal federalism, noting that the revenue-sharing formula continues to favour the Federal Government even before deductions are taken into account.

Under the final allocation structure, the Federal Government received N818.68 billion (35.4 per cent); states received N759.14 billion (33 per cent) while local councils got N534.28 billion (23.2 per cent). Oil-producing states also received N188.13 billion as derivation revenue.

He maintained that the Federal Government’s fiscal influence extends beyond its direct allocation.

“The Federal Government’s direct allocation of 35.4 per cent represents only part of its fiscal command. When combined with its administrative control over the N1.1 trillion in deductions, particularly the substantial intervention funds, the central government effectively manages a significantly larger share of the nation’s gross revenue,” he said.

Oye noted that intervention funds accounted for the largest share of deductions, with the N500 billion National Security Emergency Fund standing out. He said the allocation reflected the increasing fiscal burden of insecurity, adding that the amount was almost equal to the total allocation received by all 774 local councils combined.

Although gross revenue increased by 6.9 per cent compared to April, he warned that the country’s fiscal position remained fragile due to persistent weaknesses in key revenue sources.

According to him, mineral revenue underperformed budget expectations by 51 per cent, while Value Added Tax (VAT) collections fell by eight per cent. He said the decline in VAT receipts was troubling because it pointed to weaker consumer demand and reduced household purchasing power amid inflationary pressures.

The report also raised concerns over the federation’s savings culture, noting that only N50 billion, equivalent to 1.5 per cent of gross revenue, was saved during the period, which he described as inadequate to guard against future economic shocks and called for measures to strengthen fiscal sustainability.

“Total deductions amounted to N1.1 trillion, representing 32 per cent of gross revenue. While this marks a seven per cent decline compared to April 2026, the absolute magnitude remains structurally significant,” he added.

The Alliance urged the Federal Government to introduce a cap on pre-distribution deductions, improve transparency in the management of intervention funds and review the revenue-sharing formula to enhance the fiscal capacity of states and local governments. (The Guardian)

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