By Ayobami Ayorinde, Maryam Ibrahim and Oluchi Nkeonye
A major highlight of the allocations by the Federation Account Allocation Committee (FAAC) for the month of May 2025 is that the states received more money than the Federal Government (FG) from the Federation Account.
This is unusual. But this unusual occurrence is becoming more frequent of late. Between June 2020 and May 2023, the states received more FAAC allocations than the FG in only two months (May 2022 and April 2023). In the period between June 1999 to May 2022, not one instance of this was recorded. However, the FG got lower allocations than the states in 14 months between June 2023 and May 2025. There are indications that this trend may continue with more frequency.
Gross federation revenues have increased significantly since June 2023, largely due to the devaluation of the Naira. This has benefited all tiers of government and other FAAC beneficiaries. However, the increase in revenues across the board may mask a major shift in Nigeria’s resource allocation pattern. Historically, the FG used to receive much more money than the states. It was not unusual for the FG to, sometimes, receive more than double the allocation to the states. But a major reversal is happening, and the question is why.
The revenue sharing formulas have not changed. FG still gets 52.68% of Statutory Revenue while the states and LGAs receive 26.72% and 20.60% respectively; and FG still receives 15% from Value Added Tax (VAT) while the states get 50% and LGAs receive 35%. But the relative contributions of these two main sources of FAAC revenues are changing. The proportion contributed to gross revenues by Statutory Revenue is shrinking while that of VAT is rising. Deductions from gross revenues have also been growing, and the bulk of these deductions come out of Statutory Revenue. A combination of these factors tilts the allocation balance in favour of the states at the expense of the FG. We will throw more light on these shifts by taking you through highlights of current and historical data from FAAC. Stay with us.
Let’s start by looking more closely at the FAAC data for May 2025. As shown in Figure 1, the gross FAAC revenue received for the month was ₦2.94 trillion. Statutory Revenue made up the bulk of this, with a contribution of ₦2.09 trillion, or 71.1% of the total; while VAT accounted for ₦742.8 billion, amounting to 25.3% of the total. The remaining 3.6% of gross revenues for the month came from other marginal sources such as exchange gains and Electronic Money Transfer Levies (EMTL).
However, not all of the money that came in was available for distribution (on account of reasons we will provide later). A sum of ₦1.28 trillion (43.5% of the gross revenue) was deducted, leaving only ₦1.66 trillion (56.5% of the gross amount) as the distributable revenue for the month. This is illustrated in Figure 2. Why are the deductions so significant? We will get to that
The distributable amount of ₦1.66 trillion was then shared among FG, states, and LGAs, while 13% was allocated to mineral derivation. As shown below, the states took the largest share of ₦577.8 billion while the FG got ₦538 billion but the LGAs were not too far behind with ₦419.9 billion.
As stated earlier, states receiving more than the FG is a rarity but it is becoming less so recently. For insights, we looked at FAAC data over a period of 26 years (June 1999 to May 2025). One of our findings is that the gap between FG and states in terms of percentage of FAAC revenues started narrowing over the last 10 years, with states eventually catching up with and surpassing the FG, as seen in Figure 4 and Figure 5 below.
Yes, what’s going on? That is the question. As hinted above, there are three main reasons for the current shifts in Nigeria’s revenue allocation pattern: The first is that Statutory Revenue’s contribution to gross revenue has been declining over time, while VAT’s share has been increasing. Figure 6 illustrates this changing dynamic. In August 2011, for example, Statutory Revenue contributed 94% to gross revenue while VAT accounted for only 6%. However, by May 2025, Statutory Revenue’s share has declined to 71.1% while VAT’s contribution has increased to 25.3%.
A related reason is that statutory revenue is falling short of its budget projections due to dwindling oil revenues and over-ambitious budgets. Meanwhile, VAT revenue is outperforming budget projections. For example, the Statutory Revenue for May 2025 at ₦2.09 trillion, was 62.3% below the pro-rated budgeted estimate of ₦5.56 trillion. On the other hand, the actual VAT revenue for May was ₦742.8 billion, which surpassed the pro-rated budget target of ₦625.1 billion by 18.8%.
The third, and the major, reason is the steady increase in FAAC deductions, the bulk of which is taken out of Statutory Revenue. In May 2025, 58.8% of the ₦2.09tn in Statutory Revenue was deducted, while only ₦51.1bn (6.8%) was deducted from the VAT revenue of ₦742.8bn. In total, 96% of all FAAC deductions in May 2025 came from Statutory Revenue alone. Figure 7 and Figure 8 provide further illumination.
The deductions, particularly from Statutory Revenue, have grown significantly, eating into the funds available for distribution and disproportionately shrinking the FG’s share while VAT, which sees far fewer deductions, has now become an increasingly significant source of revenue, which gives an edge to the states based on the fact that they receive 50% of VAT. Deductions used to be relatively small. Figure 9 shows the impact of deductions on Statutory Revenue over a 10-year period. Between 2015 and 2020, deductions from Statutory Revenue ranged from 3.4% to 11.2%. However, deductions from Statutory Revenue began to rise in 2021, reaching a peak of 81% in 2024. This means that only 19% of Statutory Revenue was shared among the three tiers of government in 2024.
So, there you have it: the states are getting more FAAC allocations than the FG because the revenue source where FG receives the lion share, Statutory Revenue, is shrinking in terms of percentages and is subjected to significant deductions; while the revenue source where the states get the sizeable revenue, VAT, is growing, outperforming budget projections, and subject to minimal deductions (only cost of collection to two revenue-collecting agencies and earmark for the development commission).
The next logical question will be about the composition and the rationale for the growing deductions? Most of FAAC deductions used to be for savings into the Excess Crude Account (ECA) and transfers to subsidy account. This is no longer the case due to petrol subsidy reform, change in the petroleum law and challenges of oil production. Current FAAC deductions are mainly in four categories: transfers, costs of collection, interventions, and refunds. Transfers are statutory earmarks, such as 3% of VAT to the North East Development Commission (NEDC) or the recent 0.5% of non-oil revenue the Revenue Mobilisation, Allocation and Fiscal Commission (RMAFC). Costs of collection are 4-7% of applicable revenues granted to motivate and reimburse the Federal Inland Revenue Service (FIRS), the Nigeria Customs Service (NCS) and the Nigerian Upstream Petroleum Regulatory Commission (NUPRC).
Interventions are strategic endeavours that the three tiers of government, the owners of the Federation Account, decide to prioritise and fund directly from federation revenues. These are currently in two areas: funding to the FG for the welfare of the security forces and for the purchase of arms; and allocation to states on infrastructure and security. Refunds are mostly debts owed to states and LGAs either because the FG had previously failed to share some revenues belonging to the federation (such as NLNG dividends and signature bonus) with the other tiers of government or because the FG had used money belonging to all to settle its own obligations (such as the Paris Debt payments) or because some statutory allocations (such as 13% derivation) were not properly calculated earlier.
Figure 9 and Figure 10 show the breakdown of the deductions for the month of May 2025. Refunds, which go mostly to the states, amounted to ₦602.6 billion, accounting for 47.1% of total deductions for the month. Next in line were interventions, which at ₦500 billion, accounted for 39.1% of the total deductions. Allocations for interventions were evenly shared between the FG and the states, as each side received or was in charge of N250 billion apiece.
