Nigeria operates a federal system comprising federal, state and local governments. Fiscal federalism defines the intergovernmental fiscal relations and responsibilities between these tiers of government. In Nigeria, certain revenues are pooled into the Federation Account and distributed among the three tiers of government by the Federation Account Allocation Committee (FAAC) according to a pre-defined revenue allocation formula. However, global economic conditions and domestic factors are affecting FAAC distributions. The Petroleum Industry Act of 2021 may also impact allocations from the Federation Account.

1. Nigeria’s Fiscal Federalism
 Nigeria operates a federal system or federalism comprising federal,
states and local governments.
 In a federal system, different governments provide different services
to overlapping jurisdiction
 Fiscal federalism denotes an intergovernmental fiscal relation defining
functions and responsibilities among the various tiers of government
as well as the financial resources to achieve stated objectives.
 It relates to the division of tax income and functional responsibilities
among the various tiers of government in a federal state.
 Certain revenues are pooled and distributed among Nigeria’s 3 tiers of
government by the Federation Account Allocation Committee (FAAC)
 This distribution has always been central in financing government
operations both at the national and sub-national level
 However, recent global development and prevailing domestic
economic conditions are affecting FAAC distribution
 Besides, the Petroleum Industry Act, 2021 signed into law on 16th
August, 2021 also contains some provision with further consequences
on FAAC.

2. Fiscal Federation in Different Countries
 This revenue is primarily
generated through federal
taxes, including income
taxes, corporate taxes, and
payroll taxes.
 No government employs
value-added taxes in the
US. Instead, state and local
governments rely on
general sales taxes, and all
three levels of government
rely on selective (or excise)
taxes.
 The main source of federal
government revenue is the
federal income tax, while
other sources of revenue
include goods and services
tax (GST), excise taxes,
customs duties, and various
fees and charges
 Distributed among the
provinces and territories
through transfer payments
 Canada Health Transfer
(CHT) and the Canada Social
Transfer (CST)
 Sources of income
includes taxes, duties,
grants-in-aid, and loans.
 The Consolidated Fund
and the Contingency
Fund
 The main sources include
taxes, royalties,
contributions, and other
transfers from the federal
government.
 Vertical distribution (among
the federal government) and
Horizontal distribution
(among the state
government)
 These revenues are
deposited into the
Federation Account
US Canada India Brazil

3. Fiscal Federation in Different Countries
 Based on the
revenue-sharing
formula as stipulated
in the Revenue
Mobilization
Allocation and Fiscal
Commission Act
 52.68% of the revenue is
allocated to the federal
government;
 26.72% is allocated to
the state governments,
and;
 20.60% is allocated to
the local government
councils.
 Governed by the Federal
Constitution and the
Federal Government's
financial management
policies
 Uses the Inter-
Governmental Transfer
(IGT) formula
 Sources are taxes, duties,
fees, and other forms of
income generated by the
federal government.
 52.68% of the revenue
is allocated to the
federal government;
 26.72% is allocated to
the state governments,
and;
 20.60% is allocated to
the local government
councils.
Indonesia Angola Malaysia Nigeria

4. Nigeria
• Federal
Government
• State
Government
• Local
Government
US
• Federal
Government
• State
Government
• Local
Government
Angola
• Federal
Government
• State
Government
• Local
Government
Malaysia
• the Malaysian
government
distributes
revenue from
the Federation
Account to the
federal
government,
state
governments,
and local
governments
Indonesia
• This is
distributed
through a
revenue-
sharing
mechanism
called the
General
Allocation
Fund (DAU)
and the
Special
Allocation
Fund (DAK).
R E V E N U E A S S I G N M E N T

5. Nigeria
• Federal Government
• State Government
• Local Government
Brazil
The federal government is
currently assigned the following
main taxes:
• The personal and corporate
income taxes;
• a selective value-added-type of
tax (the IPI);
• a tax on rural property (shared 50
percent with the municipalities);
• taxes on foreign trade; and
certain taxes on financial
operations.
• The states are assigned a broad-
based value-added-type tax (the
ICMS), a tax on motor vehicles,
and estate and gift taxes.
• The municipalities are assigned a
tax on services (the ISS), a tax on
transfers of immovable
properties, and a tax on urban
real estate property.
Canada
•Revenue is allocated
between the federal
government and the
provincial and territorial
governments
India
• The central government
also provides grants to
the state governments
R E V E N U E A S S I G N M E N T

6. Nigeria
•The vertical
Revenue Allocation
Formula is: Federal
Government
52.68%; State
Governments
26.72%; Local
Governments
20.60% and
Derivation Formula
13%.
•The Horizontal
Allocation Formula:
The formula is
applicable to 36
States and 774 Local
Governments only.
US
•Federal
government: 64%
•State government:
21%
•Local government:
15%
Angola
•According to the
formula, 52.68% of
the revenue is
allocated to the
federal government,
26.72% is allocated
to the state
governments, and
20.60% is allocated
to the local
government
Malaysia
• Federal
government: 56%
• State governments:
24%
• Local governments:
20%
•13% derivation fund
for mineral-
producing states
and the 5% special
grant for Sabah and
Sarawak.
Indonesia
•General Allocation
Fund (DAU): 80% of
the total allocation
• Special Allocation
Fund (DAK): 15% of
the total allocation
• Revenue Sharing
Fund (DBH): 5% of
the total allocation
•The federal
government collects
about 85% of total
government
revenue, while the
state governments
collect about 15%
R E V E N U E S H A R I N G

7. Nigeria
• The vertical Revenue
Allocation Formula is:
Federal Government
52.68%; State
Governments 26.72%;
Local Governments
20.60% and Derivation
Formula 13%.
• The Horizontal
Allocation Formula: The
formula is applicable to
36 States and 774 Local
Governments only.
Brazil
The main vehicles for
revenue sharing are two
funds:
The Fundo de Participação
dos Estados (FPE):
constitutes 21.5% of the
net revenues of the three
main federal taxes, namely
the personal (IRPF) and
corporate (IRPJ) income
taxes and the selective VAT
(IPI).
The Fundo de Participação
dos Municipios (FPM): is
constituted with 22.5% of
the net revenues of the
income taxes and the IPI.
Its distribution formula is
more complex than that of
the FPE.
Canada
• The federal government
collects about 60% of all
revenue in Canada,
while the provincial and
territorial governments
collect about 40%.
India
• The breakdown of
revenue allocation
sharing in India
• Shareable central taxes;
42%
• Non-shareable central
taxes; 28%
• Grants-in-aid; 30%
R E V E N U E S H A R I N G

8. Nigeria
The FAAC allocation
formula in Nigeria is based
on four main factors:
•Population: 30%
•Equality of states: 35%
•Derivation: 13%
•Internal Generated
Revenue (IGR): 22%
Brazil
The FAAC allocation
formula in Brazil is based
on three main factors:
•Population: 50%
•Economic development:
25%
•Equalization grants: 25%
R E V E N U E S H A R I N G

9. Summary
Nigeria, the United States, Angola, and Malaysia are countries that experience federation
distribution in the federal, state and local government.
- In Brazil, poorer states receive a larger share of the revenue from the Federation
Account through equalization grants. In Nigeria, there are no equalization grants,
so poorer states may not receive a fair share of the revenue from the Federation
Account.
-Unlike the United States, Nigeria does not use intergovernmental transfers to target specific
funding to states and local governments in need.
-The United States does not have a single FAAC-like body that is responsible for allocating
revenue among the federal, state, and local governments. Instead, revenue is distributed
through a combination of taxes and intergovernmental transfers.