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New revenue formula: States, LGAs seek better deal

At the height of agitations for the implementation of N30,000 minimum wage last year, the Nigerian Governors’ Forum (NGF) told President Muhammadu Buhari the imperative of reviewing the current revenue formula to allow them cut bigger share of the pie to  implement  the new workers’ salary.

According to the chairman of NGF, Dr Kayode Fayemi, the campaign  for a review of  revenue sharing formula started during the tenure of Presidents Olusegun Obasanjo and Goodluck Jonathan.

Fayemi had argued that the governors’ call for a new revenue formula was not just to implement the  new minimum wage but for the lofty responsibilities foisted on them by virtue of their closeness to the grassroots

“We feel it’s time for the revenue sharing formula to change and we have made a representation to the President and Commander-in-Chief.  This was an agitation that started way back to the time of President Olusegun Obasanjo. It continued under the late President Umaru Musa Yar’Adua and President Goodluck Jonathan. So, it’s not just something that started under President Buhari,” he said.

Under the current revenue allocation formula, which commenced since the days of President Obasanjo, the Federal Government gets 52.68 per cent;  states, 26.72 per cent and local governments,  20.60 per cent while oil and gas/ solid minerals producing states enjoy their 13 per cent to compensate them for ecological disasters arising from oil production and mining.

However, as  part of measures to achieve balanced development across states and regions of the country, the Revenue Mobilisation Allocation and Fiscal Commission (RMAFC),  in 2013 embarked on nationwide consultations with notable figures on the issue.

In December 2014, the Commission came out with a proposal for a  new revenue formula which for some reasons, has never seen the light of the day.

However, early this year, the Chairman of the Commission,  Mr Elias Mbam,  had assured that the new revenue sharing formula would be ready by April 2020.

He said the verification process which had already begun would last for three months lasting end of the first quarter of  2020, the new formula would be made available.

“They  (governors) have that right (to agitate for new revenue) and it is due for a review. It is part of our mandate and part of our programmes for the year to review the revenue formula.

“It is a process and as such it is not what you can determine before you start. The process will lead to the answer.

Revenue formula and allocation is not determined by wish. And it is not something that you add and subtract. You have to take many things into consideration,” he said.

This is so because the monthly revenue allocation is the lifeblood of most states that lack mineral resources and internally Generated Revenues (IGR). It is a handout used to run those states.

It is against this backdrop that the debate on revenue sharing formula has generated so much controversy in the economic and political space to the extent that experts have canvassed a 50 per cent sharing formula for states as against their current 26.72 per cent.

For instance, a former deputy governor of Central Bank of Nigeria (CBN),  and erstwhile presidential candidate of African Democratic Congress (ADC), Dr Obadiah Mailafia, in a recent interview argued that since most capital projects are located in the states, it was imperative for them and the federal government to have equal share of revenue from the Federation Account.

“As we all know, revenue allocation across the three tiers of government has been one of the most contentious issues in federal public finance. The current arrangement was approved through an Executive Order by former President Olusegun Obasanjo in 2004. Under the current formula, the Federal Government receives 52.68 per cent from the Federation Account, while the 36 state governments shared 26.72 per cent with the 774 local governments taking the remaining 20.60 per cent. As part of the Federal Government share, the Ecological Fund is allocated1.50 per cent, the Solid Mineral Fund 1.75 per cent, the National Reserve Fund 1.50 per cent and Agricultural Development Fund, 1.75 per cent, while the oil-producing states are allocated 13 per cent derivation. This has been the arrangement since 2004.

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We understand that RMAFC is planning to revise the existing formula due to serious demands from various quarters. It is a pity that we are more concerned about the sharing of a shrinking national cake r than baking a bigger cake. We also heard recently that the National Assembly is taking bold steps to explore major steps in terms of tinkering with the structure of our government. I would have thought these issues of political reengineering and reform of the revenue allocation formula would have been taken pari passu.  But we have a different way of doing things in this country.

“In terms of general philosophy, I would expect that we should be moving in the general direction of administrative devolution and decentralisation of powers. This would entail giving more powers to the states and regions and also removing some of the items from the Exclusive List to the Concurrent List, including for example, railways and electricity. In line with this spirit, I would therefore, recommend at least a 50:50 allocation between the FGN on one hand and the states and LGAs on the other.  Left to me, therefore, I would like to see a formula whereby 50 per cent goes to FGN, while the remainder is shared among the states. Federal Government should not give subventions to local governments.  It is anomalous that we have local governments listed in our constitution. In all federations that I know of, there is only federal centre and several federating units under a second tier of government. States that want to have 100 local governments should by all means be ready to pay for them. All local governments by definition should be able to raise their own funding locally. If you cannot do so, then you should not call yourself a local government.

I also would caution that we leave the 13 per cent derivation as it is. It is a profound irony that despite receiving humongous amounts of money, the so-called oil- producing states have little to show by way of human development.

“I would also insist that the Office of the Auditor-General of the Federation should wake up to its responsibilities.  All tiers of government that receive federal funding must exercise a fiduciary duty of using those funds prudently and judiciously in the public interest. All tiers of government must be subject to rigorous auditing in the public interest. Federalism recognises legal autonomy of the states and local governments, but we misconstrue autonomy to mean a free license to steal funds. This must stop henceforth” he cautioned.

Mr Eze Onyekpere, a legal luminary with a passion for  the economic development of Nigeria and also the co-ordinator of Centre for Social Justice——a Nigerian knowledge-based institution, believes that the Federal Government should have just 30 per cent of the nation’s monthly income while the 36 states should have  45 per cent. But instead of 13 per cent derivation, mineral-producing states should be compensated with 50 per cent.

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“The review of the revenue allocation formula by the Revenue Mobilisation Allocation and Fiscal Commission is a welcome development. It is an opportunity to put into practice various recommendations for rebalancing the federation and pruning the powers of the Federal Government.

The first issue is that the revenue allocation formula cannot stand alone on its own. It has to be accompanied by a constitutional amendment that redraws the list of the executive and legislative competences and powers of the Federal Government and the states in favour of the states. Thus, the huge resources allotted to the Federal Government under the present arrangement tallies with the powers, duties and functions assigned to it under the constitutional schedules.

Essentially, the Federal Government should keep about 30 per cent  of the federation account funds while the states and local governments keep 45 per cent and 25 per cent  respectively. This will grant more autonomy to the states. The derivation principle should be strengthened so that it is not limited to 13 per cent of natural resources. It should go up to 50 per cent being the position in the Independence and 1963 Constitutions – being the only constitutions which were negotiated by Nigerians and their leaders. Derivation should be strengthened to include an increase to states of origin of local taxes like Value Added Tax (VAT) which the Federal Government had hijacked.

Meanwhile human rights advocate and Chief Executive Officer of Human Rights  Writers  Association of Nigeria  (HURIWA), Comrade Emma Onwubiko, is of the opinion that states should control their natural and human resources and pay taxes to the Federal Government.

Onwubiko who is also a former Commissioner in  National Human Rights Commission (NHRC) also moved for fiscal restructuring and constitutional amendments for any meaningful review of revenue sharing formula to be implemented.

“The Revenue Mobilisation Allocation and Fiscal Commission should organise townhall meetings and meet with Nigerians and inform the citizens about its proposals. Alteration of the revenue sharing formula will be meaningless if there is no restructuring. Nigeria needs to be fiscally restructured with proper constitutional framework to shape the colour and texture of reviewed revenue sharing formula. The way it is now, if there is no concrete constitutional amendments to accommodate fiscal federalism then any revenue sharing formula will remain artificial and will not be sustainable over time. There has to be constitutional alteration to accommodate either regional arrangements or to empower the states to control their natural and human resources and then pay taxes to the Federal Government.  However, if the RMAFC goes ahead with the current legal frameworks, then the most important component should be to make the Nigerian people the owners of the process by staging transparent dialogue sessions across the country to collate the views of Nigerians. However if that has been done already, then the Commission should implement recommendations made in those town hall meetings.


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