Revenue Formula: Matching Constitutional Responsibilities

I saw a television programme in one of the national broadcast stations on the subject of equitable Revenue Sharing Formula, the panelists as well as viewers showed serious concern on the fate of the existing revenue allocation formula as it relates to the delay in developing and implementing a new one. 

Amongst the panelists was the Chairman of the Revenue Mobilisation Allocation and Fiscal Commission, there was a severe debate among Nigerians

who commented on the television programme which focused on the Revenue Mobilisation Allocation and Fiscal Commission (RMAFC), its current revenue allocation formula and the proposed formula by the 36 state governors.

The proposal raised by the 36 state governors for a fresh review of the revenue allocation formula in favour of the states and local governments from the current formula which allocates 52% to the FG, 26% SG and 20.60% LG to their proposed formula which allots to the 35% FG, 42% SG and 23% LG called for a logical and enlightening response from the Chairman Revenue Mobilisation Allocation and Fiscal Commission (RMAFC), Engr. Elias Mbam who replied during the interview session that the ongoing deliberation on N18,000 new minimum wage would help to trigger each state to diversify its internal revenue generation as this might determine its share from the Federation Account.

Engr. Mbam’s response corresponds with the 1999 constitution of the Federal Republic of Nigeria which mandates the RMAFC to monitor accruals and disbursement of revenue from the Federation Account; review the revenue allocation formula and principles in operation to ensure conformity with changing realities; advise the Federal, State governments on fiscal efficiency and method by which their revenue can be increased.

Meanwhile, if the RMAFC decides to fully implement its constitutional authority on the operating principles of equity, fairness and justice, it therefore means that each state’s contribution to the Federation Account would determine its share from the account. Going by this, many states will collapse as we all know that some states contribute very little to the Federation Account; and many of our states and local governments are not ready to generate revenue internally.

Consider the United States where each state generates its internal revenue in order to finance the state’s needs. In this case, the government will be able to live up to its responsibilities and to dutifully render essential services to the states; while the citizens on their own part must strictly pay their taxes as and when due.

One could imagine if such can be attained in Nigeria where the state and local governments hardly discharge their constitutional responsibilities.

The issue of revenue allocation formula arose with the discovery of crude oil and its replacement for agricultural produce as the main source of revenue to the country. This led Nigeria to become a member of the Organization of Petroleum Exporting Countries (OPEC) in 1971 which paved way for the country to go into joint venture with international companies, and derived profits not only from the petroleum, but also from the mining rents and royalties.

Consequently, instead of the nation to diversify its economy and boost other sectors such as agriculture and industry, both the Federal and State governments majorly concentrated on the revenue from crude oil at the expense of other sectors. The governments since then see the oil sector as the only answer to their various financial needs. This sentiment has resulted in their inabilities to internally generate revenue and over dependency on Federal Government for funds.

Unfortunately, the states clamouring for the review in revenue allocation formula ought to remember that the Federal Government has assumed more responsibilities which were duly the responsibilities of the states and local governments because of the ineptitude of the states like ecological problem, defence and security matters as well as transportation. In this regard, the Federal Government would continue to clamour for additional funds from the Federation Account to discharge such responsibilities. In addition the states have completely annexed the allocations that go to their local government councils. I doubt if there is any local government chairman in Nigeria that has total control of his/her allocation without the interference of the state.

Despite all these, the states and local government receive huge sums as monthly allocation from the Federal Account. Just recent the Economic confidential magazine provides the sharing of a staggering sum of over N1.5 trillion to tiers of government in July 2011 which almost tripled any other allocation in recent periods yet they beneficiaries are claiming that they would not be able to pay the minimum wage. Where are the billions monthly allocation to each state go to?

The country has lost several billions of naira to pen robbery at the local, state and even the national levels as some executives squander their states’ allocations. It is no more news to us that some political office holders especially the executive and legislative arms of governments are involved in various financial crimes such as financial misconduct, bribery, corruption, money laundry, fund mismanagement and embezzlement.

While calling on the Revenue Mobilisation Allocation and Fiscal Commission to ensure it timely proposes and implements the new sharing formula that could be equitable, just and fair, the beneficiaries should also ensure they utilise such funds judiciously for the benefit of the people.

Jimoh Abubakar
[email protected]

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