This was revealed by Mr. Taiwo Oyedele, Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, in a statement on his X page.
Oyedele disclosed that the Federal Government is set to take only 10 per cent of the total FAAC allocations, while states and local governments will receive a combined 90 per cent.
The proposed change, of it becomes a reality, represents a drastic departure from the current sharing formula, which allocates 52.68 per cent to the Federal Government, 26.72 per cent to states, and 20.60 per cent to local governments.
Under the new proposal, Oyedele explained, the distribution formula for the states and local governments would include a clause stipulating that 60 per cent of their share will be based on the Principle of Derivation.
In practice, this means if ₦100 is available for distribution from FAAC, The Federal Government will take ₦10, all 36 states will share ₦36 equally, and ₦54 will be distributed based on derivation, favouring states with higher resource generation.
This change in the sharing formula is part of broader reforms aimed at eliminating numerous “nuisance taxes” and streamlining the tax collection process.
Oyedele noted that the Federal Government had to make this concession to get states on board with a centralised and more efficient tax collection system.
“The new approach not only simplifies tax collection, but also lays the foundation for fiscal federalism, giving states and local governments more autonomy over their revenues,” Oyedele said.
However, questions remain about whether the Federal Government will also reduce its share of Personal Income Tax (PIT) which is traditionally collected by states.
Oyedele pointed out that the Federal Government has long sought to centralise PIT collection, which he estimates could generate up to ₦50 trillion annually, providing ₦5 trillion for the Federal Government under the new 10 per cent rule.
Meanwhile, the Federal Government plans to rely more on internally generated revenue (IGR) from its Ministries, Departments and Agencies (MDAs) for its revenue streams.
Oyedele noted that the MDAs are already generating almost ₦1 trillion monthly for the government, with significant potential for growth once existing loopholes and leakages are addressed.
The proposed reforms represent a bold step towards decentralising revenue collection and promoting a more balanced fiscal structure in Nigeria.
However, the success of these reforms will depend on how they are implemented and whether key stakeholders can reach a consensus on the new distribution framework.
The full impact of this proposed tax overhaul will likely be closely monitored in the coming months as discussions continue between the Federal Government and other tiers of government.