Agora Policy: NUPRC, customs got more FAAC allocation than each of 4 geopolitical zones in January

Agora Policy, an Abuja-based think tank, says three government-owned enterprises (GOE) received more federal account allocation committee (FAAC) revenue as cost-of-collection in January than each of four geopolitical zones.

The GOE are the Federal Inland Revenue Service (FIRS), which receives four percent of non-oil revenues; the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), which gets four percent of royalties, rents and other revenues from the oil and gas sector; and the Nigeria Customs Service (NCS), which receives seven percent of customs duties and levies.

In a policy note titled ‘Why Nigeria’s Cost-of-Collection Approach is no Longer Tenable,’ the think tank said the idea of centrally collecting taxes and revenues remains sound.

The firm said this allows for ease and efficiency of collection and administration.

“But the idea of turning federal agencies into commission agents of the Federation is riddled with all sorts of problems. The cost-of-collection approach to rewarding and funding such agencies might have served a useful purpose at some point,” Agora Policy said.

“However, recent developments show that it is a flawed idea. It enables abuse, distortions, distractions and wasteful expenditures. The utility of the approach has been overtaken. It is thus no longer tenable.”

Agora Policy said a review of the fully disaggregated data on FAAC disbursements, as published by the National Bureau of Statistics (NBS), highlights some of the contradictions the arrangement has created.

“For example, in January 2024, FIRS received N43.35bn as cost of collection. None of the 36 states of the federation received up to this amount as federation allocation,” the think tank said.

“The state with the highest gross allocation for the month, Delta state, got N39.59bn, which means that FIRS not only received an amount more than what each of all the 36 states but also got 109.49% of the allocation of the state with the highest gross allocation. 

“It is interesting to note that customs received N16.27bn, the lowest cost of collection for the month. But what Customs got was higher than what each of the 31 states received as gross allocation for the month.

“There is even a more incongruous dimension. The three agencies received a total of N78.30bn as the cost of collection for January 2024.

“But the gross allocations to the six geo-political zones for the same month were as follows: N56.60bn for the north-east; N55.58bn for the north-central; N76.09bn for the north-west; N47.75bn for the south-east; N141.85bn for the south-south; and N86.60bn for the south-west. 

“This shows that for the month, the cost of collection received by the three agencies (N78.30bn) was higher than the gross FAAC allocations to each of four geo-political zones in the country: north east, north-central, north-west and south-east. 

“The south-south and south-west got more than what the three agencies received only on account of 13 percent derivation for the oil producing states and the allocation of N21.28bn as the net allocation to Lagos State for value-added tax (VAT).”

‘COST OF COLLECTION SHOULD BE REVIEWED’

Agora Policy said the cost of collecting revenue by the GOEs should be reviewed.

“One glaring issue is that the increase in revenue is not necessarily a product of increased efforts. The three agencies (NCS, FIRS and NUPRC) will rake in more money and collect higher commissions simply because of the depreciation of value of the Naira, which is the effect of monetary policy. This is basically rent transfer,” the think tank said.

“Two, these agencies are getting more allocations at the expense of others, including states and zones that have millions of citizens to cater for and a slew of challenges to tackle. 

“Three, giving agencies a portion of the revenue that passes through them has created a perverse incentive where they prioritise revenue collection and de-emphasise the other parts of their work even if at a cost to the larger economy. 

“The fourth issue is that most government agencies want to become commission agents or revenue-generating agencies. This distracts them from their core mandates and leads to imposition of heavy costs on individuals and businesses.

“The last problem is that the quantum of money available to these agencies predisposes them to extravagance, opacity and graft.”

AGORA POLICY RECOMMENDS FUNDING ALTERNATIVE FOR FIRS, NUPRC, NCS

Contrary to the one percent  cost of collection proposed by the presidential committee of fiscal policy and tax reforms, Agora Policy said the approach is defective and cannot be fixed simply by reducing the percentage charged,

“Our position is that the three agencies should be funded, and well-funded, via appropriation by the federal government,” Agora Policy said. 

“They are providing important services and adequate provisions should be made for them. But their budgets should be based on verifiable, justifiable and reasonable needs.

“Increase in budgetary provisions for them should be tied to expected improvements and returns, as opposed to the current practice where expenditure routinely rises to meet available money.”

According to the firm, the government should aim for adequate and predictable funding for these important agencies.

The policy document also recommended that the government should receive an extra but minimal percentage as allocation for collecting revenues on behalf of the federation, and performance bonuses be given to these agencies to incentivise them – but this should be when they surpass pre-agreed revenue targets.

Agora Policy said the cost of collection should be jettisoned for a more transparent, prudent and accountable approach.