PSAF – Nov 2014 – L2 – Q1 – Government Revenue

Calculation and distribution of revenue collected by Olakoma Federation across federal, state, and local levels.

Question

Eboda State is one of the 30 states in the Olakoma Federation. The Federation has a population of 120 million people with 700 local government councils and a land mass of 300,000 sq kilometers.

Eboda State has a population of 12 million, 25 local government councils, and a land mass of 30,000 sq kilometers.

The following transactions took place in the Office of the Accountant-General of Olakoma Federation during the year ended December 31, 2013:

Revenue Source	Amount (N’ Million)
Crude oil sale	350,000
Domestic oil receipts	445,000
Miscellaneous oil receipts	105,000
Royalty on crude oil	101,000
Royalty on gas	95,000
Rentals on oil field	87,000
Gas flared penalty	77,000
Petroleum profit tax	650,000
Companies income tax	500,000
Other non-oil taxes	225,000
Import duties	255,000
Export duties	125,000
Excise duties	320,000
Custom penalty charge	115,000
Custom fees account	120,000
Common external tariff levy	100,000
Court fees	30,000
PAYE of armed forces	55,000
7% Port levy	25,000
Value Added Tax (VAT)	700,000

Additional Information:

The Olakoma Customs Service is entitled to 7% cost of collection on all revenues collected, while the Federal Inland Revenue Service is entitled to 4% of non-oil revenue.
The sharing formula for the Federation Account and VAT is as follows:

Category Federation Account VAT

Federal Government 52.68% 15%

State Governments 26.72% 50%

Local Governments 20.60% 35%
A 13% derivation is paid to oil-producing states, based on oil and gas-related income.
The sharing ratio in (ii) above is based on the following criteria:

Category State Local Government

Equity 40% 40%

Population 30% 30%

Land Mass 20% 20%

Internally Generated Revenue Effort 10% 10%
The total internally generated revenue effort of the 30 states and 700 local government councils amounted to N500 billion and N300 billion, respectively.
The total internally generated revenue effort of Eboda State and its 25 local governments amounted to N50 billion and N20 billion, respectively. Eboda State is not one of the oil-producing states.
All revenues due to all local governments in each state are paid to the State Joint Local Government Account. This account is entitled to 10% of the Internally Generated Revenue (IGR) of the state.

Category	Federation Account	VAT
Federal Government	52.68%	15%
State Governments	26.72%	50%
Local Governments	20.60%	35%

Category	State	Local Government
Equity	40%	40%
Population	30%	30%
Land Mass	20%	20%
Internally Generated Revenue Effort	10%	10%

Required:

a. State the differences between the Federation Account and the Consolidated Revenue Account. (4 Marks)

b. Calculate:

i. Olakoma Custom Service’s cost of collection. (3 Marks)
ii. Federal Inland Revenue Service’s cost of collection. (2 Marks)
iii. The 13% derivation paid to oil-producing states. (3 Marks)

c. Calculate the amount to be credited to:

i. Consolidated Revenue Fund of Olakoma Federal Government. (6 Marks)
ii. Eboda State Consolidated Revenue Fund Account. (6 Marks)
iii. State Joint Local Government Account. (6 Marks)

(Show workings)

Answer

a. Differences Between Federation Account and Consolidated Revenue Account

The Federation Account is a distributable pool account that contains all revenue collected by the Olakoma Federation, except proceeds from the PAYE of personnel from Armed Forces, Olakoma Police, Foreign Service, and residents of the Olakoma Federal Capital Territory. Funds in the Federation Account are allocated to federal, state, and local governments as prescribed by law, with distribution guided by established revenue allocation formulas.

The Consolidated Revenue Fund (CRF) was established by a section of the Olakoma Constitution. All revenue items not designated for other funds must be paid into the CRF, such as PAYE from the Armed Forces, Police, Foreign Affairs officers, and Olakoma Federal Capital Territory residents.

b. Olakoma Custom Service Cost of Collection