What is revenue allocation
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:
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 Ј85 million under its taxing power while the total revenue collected by the then three regions was only slightly over Ј14 million. Estimates for the fiscal year 1962—1963 show a similar relationship, the figures being Ј93 million for the Federal Government and Ј19.6 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 Ј67 million was more than Ј7 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 Ј14 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 Ј492,476 in 1960—1961 to an estimated return of Ј2,276,100 in 1961—1962. Because the North appears to have no oil, and because the nation’s oil revenue may move as high as Ј100 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.
Brief Historical Outline of Revenue Allocation Formulas in NigeriaSource: www.nigerianmuse.com