Each State shall, in respect of each financial year, pay to the Federation an amount equal to such part of the expenditure incurred by the Federation during that financial year for the purpose of collection of taxes or duties which are wholly or partly payable to the State pursuant to the provisions of this Part of this Chapter or of any Act of the National Assembly as is proportionate to the share of the proceeds of those taxes or duties received by the State in respect of that financial year.
(Each State in Nigeria is to pay a certain amount of money to the Federal Government every financial year, an amount that is equal to such part of the expenses which the Federal Government has incurred from collecting State taxes or duties. This has to be proportionate to the share of proceeds from taxes or duties received by the State Government from the Federal Government in respect of that particular financial year.)
Section 166 (1)
Any payment that is required by this Part of this Chapter to be made by the Federation to a State may be
set-off by the Federation in or towards payment of any sum that is due from that State to the Federation in respect of any loan made by the Federation to that State.
(If a loan has been taken out by the State Government from the Federal Government which the State Government is yet to repay, the Federal Government can set-off i.e. deduct the money owed by the State Government from the money which the Federal Government is due to the State Government.)
Section 166 (2)
The right of set-off conferred by subsection (1) of this section shall be without prejudice to any other right of the Federation to obtain payment of any sum due to the Federation in respect of any loan.
(The right of set-off i.e. reduction of the loan from the money due as seen in the previous section, shall not prevent the Federal Government from collecting payment of sum for any loan which the Federal Government is due.)