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Agora report: FG, States clash over high cost of revenue collection

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Agora report: FG, States clash over high cost of revenue collection

…Govs move to cut FIRS, NCS, NUPRC’s commissions

Governors of the 36 states of the federation under the umbrella body of Nigeria Governors Forum (NGF) have started a move to stop the current practice of rewarding some federal agencies with a portion of the revenues they collect on behalf of the federation, Business Hallmark has learnt.

The move is coming on the heels of a recent report by a think-thank committed to finding practical solutions to urgent national challenges, the Agora Policy, which revealed that no state government received gross revenue allocation as much as what one of the agencies, the Federal Inland Revenue Service Revenue Service (FIRS) earned as cost of collection in January 2024.

According to findings, only three federal agencies that collect revenues on behalf of the federation, the Nigeria Customs Service (NCS), Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and the Federal Inland Revenue Service (FIRS), are allowed to deduct the cost incurred on federally-collected revenues at the monthly meeting of the Federation Accounts Allocation Committee (FAAC) before the funds are shared to the three tiers of government and other statutory recipients.

Checks revealed that while the NCS gets 7% of customs levies and duties collected, NUPRC receives 4% of the royalties, signature bonus and fines of oil and gas revenues and FIRS receives 4% of the non-oil taxes it helps to collect.

Meanwhile, whereas the percentages paid out to the three agencies might look small, the actual payments to the super agencies are humongous, dwarfing the allocations to even the highest revenue receiving oil producing states of Delta, Rivers and Akwa Ibom.

Using the National Bureau of Statistics (NBS) most recent disaggregated data on FAAC disbursements, the Agora report showed that FIRS received the sum of N43.35 billion as cost of collection for January 2024, NUPRC got N18.68 billion, while NCS earned N16.27 billion, totalling N78.3billion.

Meanwhile, Delta State, the state with the highest gross allocation in January 2024, received N39.59 billion, N3.76billion less than what FIRS earned in the month under review.

Also in June and July 2023, FIRS received 138.73% and 142.66% respectively of what Delta, the state with the highest gross allocation in those two months

The report stated further that only five states each received gross allocations more than NUPRC’s N18.68 billion cost of collection: Akwa Ibom, Bayelsa, Delta, Lagos and Rivers in January 2024.

“Remarkably also, 31 states each received less than the N16.27 billion that Customs got as cost of collection for the month.

“Customs got the least cost of collection of the three agencies, and the amount it got was higher than what each of 31 states received as gross allocation for the month.

“But the real mind-blowing part is that the amount received by the three federal agencies in January 2024 was higher than what each of four zones of the Federation got as gross allocation for the month.

“The total cost of collection received by FIRS, NUPRC and NCS in January 2024 was N78.30 billion while the allocations to the geopolitical zones were as follow: South-East (five states), N47.75 billion; North-Central (six states), N55.58 billion; North-East (six states), N56.60 billion; North-West (seven states), N76.09 billion; South-West (six states), N86.60 billion; and South-South (six states), N141.85 billion.

“This means that the N78.30 billion cost of collection received by the three agencies as a percentage of the gross allocations to the geo-political zones translated to: 163.98% of the allocation to the South-East; 140.88% of allocation to the North-Central; 138.84% of the allocation to the North-East; 102.90% of the allocation to the North-West; 90.42% of the allocation to the South-West; and 55.20% of the allocation to the South-South.

“The South-South and South-West got more than what the three agencies received only on account of 13% derivation for the oil producing states and the allocation of N21.28billion as the net allocation to Lagos State for Value Added Tax (VAT)”, said Waziri Adio, founder and Executive Director of Agora Policy.

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The think-thank explained that it used gross allocation for the analysis because net allocation was not deployed during FAAC disbursement meetings.

“Our analysis was conducted using gross allocation because it is the total amount due to the entities before deductions are made and comprises statutory allocation and VAT”, the body stated.

Meanwhile, BH reliably gathered that while there has been a passive debate on the appropriateness of rewarding selected federal agencies with a portion of the revenues that they collect on behalf of the federation, the damning Agora report has further heightened the call for the review of the lopsided reward policy.

The move, it was learnt at the weekend, is being championed by aggrieved state governors, who felt cheated of their deserved entitlements.

A close aide to a state governor in the South Western part of the country, who is at the forefront of the review of the nation’s lopsided revenue formula, who pleaded for anonymity, informed our correspondent that state governors are calling for the complete abrogation of deducting costs of revenue collection from source.

“Our principals (state governors) have before now, demanded the downward review of the costs of collection.

“They felt that it was too high. Initially, no one paid attention to the anomaly because the amount payable to the three agencies (Customs Service, FIRS and NUPRC) at the end of every month was negligible.

“But when (Babatunde) Fowler came and revolutionalised the business of revenue collection at FIRS like he did in Lagos, spurring competition amongst competing agencies to generate more, the agencies commission ballooned.

“They started engaging in fiscal interventions like building roads, schools projects like hostels, libraries and lecture rooms and other projects not statutorily approved for them to execute.

“Many people started seeing that the agencies are sitting on loose and largely unmerited funds. This ignited the move by some state governments, especially Lagos and Rivers, to try to take over some of their finances like VAT through judicial interventions”, the source noted.

The source also disclosed that state governors played a role in the recent recommendation of the Presidential Fiscal Policy and Tax Reforms Committee headed by Taiwo Oyedele for a downward review of the agencies costs of collection to 1%.

“Though many Nigerians are not aware of it, the NGF played a big role in the debate that resulted in the review of the three agencies costs of collection down to 1%.

“However, the Agora report has pushed the matter to another level. In the last two weeks, the question on the lips of many governors is why should fully funded government agencies be paid commission for jobs they are employed and fully paid to do.

“A committee has been set up to look at how to abrogate the approvals given to the agencies to first deduct their cost of revenue before remitting the rest to the federation account.

“States attorney generals are involved in the process. What we are looking at is a situation, where the three super agencies will appear before the National Assembly to present and defend their budgets like every other MDAs before their funds will be released to them by the Ministry of Finance.

“They must also return all unspent funds to the public treasury at the end of every budget year.

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“Apart from this, there are also ongoing talks to share the costs of revenue collection between the three tiers of government based on the current sharing formula of 52.68 percent to the federal government, 26.72 percent to states, and 20.60 percent to local governments.

“The present arrangement where the Federal Government share only profits (revenues) but not liabilities (cost of collection) is not acceptable. Nigerians will soon hear from us (governors)”, the source stated

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