historical revenue allocation outline

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

Adapted from Table 11.1

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