historical revenue allocation outline
December 28, 2006 | posted by Nigerian Muse (Archives)


 

 

 

Adapted from Table 11.1

of

Book by F.A.O. Scwharz (“Nigeria:  The Tribes, The Nation or the Race”  MIT Press, 1965; page 206)

 

Amounts Received by The Three Regions of Nigeria from the Federation (in Pounds)

 

 

S/N

ITEM

Region

1959-60

1960-61

1961-62

(estimate)

1

Import Duty

(Tobacco)

 

 

 

 

 

 

North

516,347

515,731

479,600

 

 

West

1,142,413

1,068,845

1,002,010

 

 

East

1,564,862

1,429,868

1,243,070

2

Import Duty

(Gasoline)

 

 

 

 

 

 

N.

759,878

679,385

759,850

 

 

W.

1,350,459

1,179,871

1,988,350

 

 

E.

772,917

880,344

982,800

3

Import Duty

(Diesel Oil)

 

 

 

 

 

 

N.

496,659

655,597

858,600

 

 

W.

402,759

611,270

802,950

 

 

E.

410,562

525,785

667,800

4

Export Duties

(Produce, Hides, Skins)

 

 

 

 

 

 

N.

4,451,466

4,078,298

3,354,800

 

 

W.

8,447,011

7,488,591

5,658,710

 

 

E.

2,684,841

2,457,199

1,883,600

5

Excise Duty

(Tobacco)

 

 

 

 

 

 

N.

1,449,433

1,522,640

1,881,890

 

 

W.

1,619,285

1,708,743

2,116,470

 

 

E.

500,601

388,956

479,600

6

Mining Royalties & Rents

 

 

 

 

 

 

N.

414,255

529,454

689,720

 

 

W.

79,247

114,919

1,326,200

 

 

E.

415,717

492,476

2,951,350

7

Distributable Pool (Mining)

 

 

 

 

 

 

N.

 

282,983

982,960

 

 

W.

 

169,983

589,780

 

 

E.

 

219,180

761,790

8

Distributable Pool

(General Imports)

 

 

 

 

 

 

N.

3,654,671

4,993,662

5,431,580

 

 

W.

2,192,802

2,999,060

3,259,950

 

 

E.

2,83,370

3,868,119

4,209,470

9

Total Rounded off

 

 

 

 

 

 

N.

12,124,000

13,775,000

15,504,000

 

 

W.

15,417,000

16,250,000

16,307,000

 

 

E.

9,413,000

10,629,000

13,390,000

           
10 Total from Federal to Regions   36,954,000 40,654,000 45,201,000
           

11

Percentage of Regional Revenue

Derived from Constitutionally Required Payments from the Federal Government

 

1959-60

1960-61

1961-62

(estimate)

 

 

N.

69.2

78.0

71.0

 

 

W.

78.3

79.1

73.0

 

 

E.

63.8

63.2

64.8

12

Sub-totals Regional Revenue (Federal + Internally Generated)

 

 

 

 

 

 

N.

17,520,000

17,660,000

          21,837,000

 

 

W.

19,690,000

20,544,000

          22,338,000

 

 

E.

14,754,000

16,818,000

          20,664,000

 

 

 

 

 

 

13

Total Regional Revenue

 

51,964,000

55,022,000

         64,839,000

 

 

 

 

 

 

14

% Total Regional Revenue

 

 

 

 

 

 

N.

33.7

32.1

33.7

 

 

W.

37.9

37.3

34.5

 

 

E.

28.4

30.6

31.8

 

Note:  A small amount of income tax was also transferred in 1959-60 and 1960-61, so that the sum of the listed figures is somewhat less than the totals.

Page 203 ff of Schwarz:

QUOTE

 It was previously mentioned that the Federal Government has exclusive power to impose certain taxes — import duties, export duties, excise taxes, income taxes upon the profits of business corporations, royalties upon the extraction of minerals, mineral rents, and most sales taxes can only be imposed by the Federal Government. Though the residual taxing power lies with the regions, the taxes that the regions impose today are much less lucrative than the exclusively federal taxes. During the fiscal year 1960—1961, the Federal Government collected over £85 million under its taxing power while the total revenue collected by the then three regions was only slightly over £14 million. Estimates for the fiscal year 1962—1963 show a similar relationship, the figures being £93 million for the Federal Government and £19.6 for the regions. Yet despite the fact that the Federal Government collects most of the taxes, the regional governments are doing most of the spending. They spend several times what they collect in taxes. Thus, in 1962—1963 the regions’ recurrent expenditure of over £67 million was more than £7 million more than the Federation’s recurrent expenditure.

The regions are able to spend several times what they collect in taxes because the Constitution compels the Federal Government to turn over to the regions large portions of its revenue from specified taxes. Since independence it has turned over to the regions each year approximately 40 per cent of its yearly revenue. Thus, though the Federal Government is given wide taxing powers so as to ensure uniformity and avoid conflicting and overlapping regional taxes, the regional governments eventually have the power to decide how to spend much of the revenue collected by the Federal Government.

There are a number of rational methods by which federal revenue could be allocated to the regions. One is to return tax revenue to the region from which it can best be estimated that it came. A second possibility is to give each region a share equal to its share of the country’s population. A third method is to ensure balanced development between the regions by helping the backward more than the advanced.

The Constitution reflects all these principles — derivation, per capita distribution, and balanced development. Though the ratio varies from year to year, approximately two-thirds of the money is distributed according to the principle of derivation and the remainder is distributed under a formula which was designed to take into account “population as a broad indicator of need” and the “balanced development of the Federation. “

 Of the taxes that must, under the principle of derivation, be returned  to the region from whence they came, the most important has been the export duty on produce (basically agricultural commodities) and hides and skins. For the fiscal year 1960—1961, the regions collectively received over £14 million from the return of that tax, approximately as much as they collected from all the taxes they themselves were able to impose. (Table 11.1 sets forth the amounts the various regions received from the various taxes returned to them.) Import duties from tobacco, diesel oil, and gasoline, and the excise duty on tobacco go to the region of consumption. Finally, 50 per cent of the royalties and rents received from mining enterprises are also returned to the region in which the mining was done. With the discovery and increasing production of oil in the South, particularly the East and Midwest, that should prove an extremely significant source of revenue. The Eastern Region’s 50 per cent share of the royalties on Eastern Region oil jumped from £492,476 in 1960—1961 to an estimated return of £2,276,100 in 1961—1962. Because the North appears to have no oil, and because the nation’s oil revenue may move as high as £100 million in the relatively near future, it is highly likely that some day there will be political controversy about the distribution of oil revenue.

 The money that is distributed according to a formula that reflects population and the policy of balanced development comes from two sources. Thirty per cent of all import duties (other than the few mentioned above, which are transferred in their entirety to the regions, and the duty on beer, spirits, and wine, which is kept by the Federal Government) goes into a “Distributable Pool Account.” So does 30 per cent of the royalties and rents received from mining enterprises, including oil wells. Then the money in the “Distributable Pool” is transferred to the regions in the ratio of 40 to the North, 31 to the East, 18 to the West, and 6 to the Midwest.

 

UNQUOTE



Brief Historical Outline of Revenue Allocation Formulas in Nigeria

 

ITEM

Date

 

Federal

Govt

%

State

Govt.

%

Local

Govt.

%

Special

Funds

%

Total

%

Phillipson  Report

1946

Largely By Derivation, resulting in

Northern Region - 46%

Western Region - 30

Eastern Region - 24

Hicks-Phillipson  Report

1951

By derivation (for taxes that can be regionally identified), need (eg by population) and national interest

Chick Commission

1953

FG -  50% of  general import duty

FG -   50% of the import and excise duty on tobacco

 

 

 

 

 

FG

50%  share basis on export duty on hides and skins

 

 

 

Regions - 50%  on general import duty on derivation basis;

 

Regions: - 50% of import and excise duty on tobacco based on derivation;

 

Regions:

- 100% of the import duty on motor spirit

-100% of the mining rent and royalty should go to the regions,

 

Regions:

50%-50%  share basis on export duty on hides and skins

 

Raisman Commission

1958

Introduced Distributable Pool Account (DPA) under federal control

From DPA: 20% of mining rent and royalty

 

[DPA - according to principles of "continuity, minimum responsibility, population and balanced development of the federation"]

Sales produce and motor vehicle tax - 100%

 

From DPA: 50% of mining rent and royalty returned to region of derivation

From DPA: 30% of mining rent and royalty to all other regions

 

 

 

 

Binns Commission

1964

No fundamental changes

proceeds of the excise duty imposed on locally produced motor spirit and diesel oil, the federation shall paid to the regions,  duty based on their consumptions

 

 

 

 

Federal Military Decree 15

1967

 

[Military coup January 1966]

[States created May 27, 1967]

DPA divided equally among 6 Northern states; by population among Southern states

 

 

 

Dina Commission

1969

(rejected)

DPA renamed States Joint Account
(SJA) and that a Special Grants Account (SGA)

Allocation of funds based on: tax effort,
balanced development and national interest

Offshore
operations revenues  shared: Federal
Government, 60%; SJA, 30%; and SGA, 10%.


Onshore Royalties shared: Federal Government, 15%; State of derivation, 10%; SJA, 70% and SGA, 5%.

 

Revenue
from Excise Duty shared: Federal
Government, 60%; SJA, 30%; and SGA, 10%
 

Revenue from Import Duty shared:
Federal Government, 50% and SJA, 50%.

 

Revenue
from Export Duty shared: Federal Government, 15%; State of Derivation, 10%; SJA, 70%; and SGA, 5%.
 

 

 

 

Federal Military Decree 6

1975

DPA:

- 80%of mining rents and royalties,

- 35%of import duties,

- 100% of duties on motor spirits,
tobacco and hides and skin

- 50% of excise duties

DPA be divided among the states on the following basis:

- 50% based on equality of states

 

- 50% based on
population

 

 

 

Aboyade Commission

 

1977

57.00

30.00

10.00

3.00

100.00

Okigbo Commission

 

1980

53.00

30.00

10.00

7.00

100.00

Revenue Allocation Act

 

1981

55.00

30.50

10.00

4.50

100.00

Pre-Supreme Court - Legal Decrees/Law

 

Pre-April 2002

48.50

24.00

20.00

7.50

100.00

Pre-Supreme Court - RFMAC Proposal

 

August 2001

41.23

31.00

16.00

11.70

100.00

Supreme Court Ruling

 

April 2002

 

 

 

Unconstitutional

 

Post-Supreme Court - Executive Order # 1

 

May 2002

56.00

24.00

20.00

0.00

100.00

Post-Supreme Court - Executive Order # 2

 

July 2002

54.68

24.72

20.60

0.00

100.00

Post-Supreme Court - RFMAC Proposal

 

January 2003

46.63

33.00

20.37

0.00

100.00

 

Latest RFMAC Proposal

 

 

Submitted to President

September 20,  2004

 

47.19

 

 

31.10

 

 

15.21

 

National Priority Services Funds*:

Ecology - 1.50

Mineral  Devt.- 1.75

Agric Devt. - 1.75

Reserve Fund - 1.50


Total  -   6.50

{joint Fed/State/LG

management}

 

100.00

Presidential Proposal

Submitted to NASS

January 25, 2005

47.19

31.10

15.21

 Ditto

+ Horizontal formulas**

+ State Derivation

Funds Boards to manage 13% derivation***

 

100.00

 

*General Ecological Fund (1.50 per cent); Solid Minerals Development Fund (1.75 per cent); National Agricultural Development Fund (1.75 per cent) and National Reserve Fund (1.50 per cent).

 

** Horizonal Formulas for Distributing Revenue

Item

To States

To LGs

     

% From FG

31.10

15.21

 

 

 

Equality

45.23

0.00

Population

25.60

30.83

Population

Density

1.45

6.45

Internal Revenue

Generation Effort

8.31

13.31

Land Mass

5.35

10.35

Terrain

5.35

10.35

Rural Roads &

Inland Waterways

1.21

6.21

Potable Water

1.50

6.50

Education

3.00

8.00

Health

3.00

8.00

Total

100.00

 

100.00

 

 

 

***Sharing of 13% Derivation Fund (to be managed by States Derivation Fund

Boards)

 

Item

13% Derivation:

Basis of Sharing

  percentage shared Among entities

 

 

 

To States

60.00

Relative to Quantum of Production

To Local Governments

30.00

50% quantum; 20% equality

20% population; 10% self-help projects

To Community

10.00

To be specified according to relevant

Assembly (House or National)

Total

100.00

 

 

 

 

 


 



The Shagari Years (1979 - 1984) Finances





News items on Revenue Allocation formula

REFERENCES

Oil and the Politics of Revenue Allocation in Nigeria
Chibuike U. Uche & Ogbonnaya C. Uche [2004]; pdf file
Intergovernmental Fiscal Relations: The Nigerian Experience
Akpan H. Ekpo [August 2004]; pdf file
Petroleum Revenue Management: The Nigerian Perspective
John Udeh [October 2002]
Transfer Dependence and Regional Disparities: The Case of Nigeria
Leonard Wantchekon and Tamar Asadurian [August 2002]


Compiled by Mobolaji E. Aluko

Latest Update: November 2004


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