Thread by @toluogunlesi

The conversations around CRF have led me to go back to look at the structure of Nigeria’s finances: CRF vs Federation Account, and how all that money is shared. That thing is somewhat complicated, but let me have a go at an explanation of how it works. #Thread

The Federation Account is the OATT account, at very top of the food chain. Belongs to all 3 tiers of government. It’s the Big Wallet. All Oil + Non-Oil (Taxes) Revenue go inside it, except for the following: PAYE from Armed Forces, NPF, FCT residents, and Foreign Service.

100% of Nigeria’s Non-Oil Revenue goes into Federation Account, FA (less, of course the “cost of collection” by Customs and FIRS”, which is a % of what they collect).

As for Oil Revenue, only 87% belongs to FA. 13% belongs to the oil producing States (the famous “derivation”).

After these Monies have entered the FA and taken their seat and relaxed small, it is time for the sharing. The knives come out. The money inside is shared by the Federal, State and Local Governments, at raucous monthly meetings in Abuja. (Fights and vexing are not uncommon)

Here’s how it is shared.

VAT is kind of a stand-alone, in a special class. Has its own formula: 15% goes to the FG, States share 50% and LGAs share the balance of 35%.

So you can see how the recent 50% increase in VAT (5% to 7.5%) will mostly benefit the States and LGAs.

With VAT out of the way (and 13% derivation money also out of the way, remember?), the Federation Account money is shared this way:

LGAs get 20.60%

States get 26.72%

(Total for both tiers: 47.32%)

FG gets the rest, into multiple accounts (like 5 accounts), as follows:

FG Consolidated Revenue Account: 48.5% (of Federation Account sharing)

FG Development of Natural Resources Account: 1.68%

FG Share of Derivation + Ecological Fund: 1%

FG Stabilization Fund: 0.5%

Federal Capital Territory: 1%

Total FA share for FG: 52.68%

So, to recap, Consolidated Revenue Fund is a Federal Govt ‘account’ that is 48.5% of Federation Account (ie Total FA less 13% States’ derivation less States & LGAs VAT)

The PAYEs (Income Taxes) that don’t go into FA (see earlier tweet) - I believe they also end up in the CRF.

This Consolidated Revenue Fund also receives, by way of inflows, a portion of revenues generated by Federal Govt agencies - JAMB, NPA, NIMASA, NIPC, NIPOST etc.

So it’s a combination of 48.5% of Federation Account + a portion of Operating Surpluses of specified FG Agencies.

It is from this CRF that the Federal Budget is appropriated and funded.

Inside this Budget there are some statutory provisions - mandatory direct transfers to the Fed Legislature (NASS), Fed Judiciary (NJC), UBEC (2% of CRF), BHCPF (1% of CRF), NDDC, PCC, INEC, NHRC...

A summary on the FCT: As a special creation, it gets the following provisions for its funding:

- 1% of Federation Account (comes out of the total 52.68% for the FG)

- 1% of VAT Pool (comes out of the 15% that goes to the FG)

- PAYE from FCT Residents

Back to Federation Account, the ‘OATT’ Account.

The primary contributors to it are:

- NNPC (crude oil sales)

- DPR (Collects Proceeds from oil block sales, royalties, gas flaring penalties, etc)

- FIRS (Collects PPT, VAT, CIT, EDT)

- Customs (Collects Customs/Excise duties)

FIRS, DPR and Customs all receive from the Federation Account a % of what they collect into it, as “cost of collection.”

Customs: 7%

FIRS: 4%

DPR: I think 4%

Also taken out of the FA pre-sharing is NNPC’s contributions to its JV operations with OilCos, known as Cash Calls.

So, another Recap: The deductions made from FA before the ~52:26:20 sharing by all 3 tiers of Govt:

- 13% derivation

- VAT Pool

- Cost of collection for FIRS, DPR, Customs

- JV Cash Calls

[PAYE from Military, Police, FCT residents & Foreign Service also doesn’t go into FA]