The Federal Account Allocation Committee (FAAC) is Nigeria’s monthly revenue-sharing mechanism through which all federally collected income; mainly from oil, customs duties, and taxes; is pooled at the national level and redistributed among the federal, state, and local governments. Allocation is based on a formula that includes equality across states, population size, landmass, and a derivation principle that currently gives oil-producing states a fixed share of their generated revenue.
A pure derivation-based fiscal model, by contrast, removes this centralized pooling system entirely. Instead, states retain almost all revenue generated within their territory and finance themselves primarily from local resources. The federal government would then rely on direct contributions or fixed taxation from states rather than redistributive sharing.