New revenue formula: Nigerian govt. proposes reduction in federal, states allocations; raises LGs’ share

By Bassey Udo

Allocations to the Federal and State governments under the proposed revised revenue formula should be reduced by 2.03 percent and 1.1 percent, the Federal Government has proposed.

On the other hand, it has proposed an increase by about 3.13 percenr to the share of revenue to local government councils as part of efforts to shift emphasis to the development of the grassroots.

The proposals contained in the memorandum submitted to the committee mandated to review the existing revenue allocation formula also asked for the derivation revenue allocation to oil producing states to be retained at 13 percent.

The proposed adjustments were allocation to the federal government from the existing 52.68 percent to 50.65 percent; 36 state governments, from 26.72 percent to 25.62 percent, while 774 Local Governments would be reviewed upwards from 20.60 percent to 23.73 percent.

The  federal government’s  position was submitted to the committee on Tuesday in Abuja by the Secretary to the Government of the Federation, Boss Mustapha, at the grand finale of the nationwide public hearings and consultations conducted by the Revenue Mobilization, Allocation and Fiscal Commission (RMAFC) on the existing revenue sharing allocation.

The SGF was represented by the Permanent Secretary (Political & Economic Affairs) his office, Andrew Adejoh.

Guiding Principle for proposal
In making the proposal, the federal government said the guiding principle in reviewing the existing revenue allocation formula should be the level of responsibilities attached to the different tiers of government as dictated by the provisions of the 1999 Constitution (as Amended).

In his presentation, The SGF drew attention to the Second Schedule of the Nigerian constitution containing 68 items on the Exclusive Legislative List.

The schedule, he said, imposes  on the federal government the responsibility to use resources accruing to the federation to provide services and related developmental needs.

Also, on the Concurrent lists of the same constitution containing 30 items, Mustapha said both the federal and state governments were required to jointly use available resources to handle.

For the committee to arrive at a vertical revenue allocation formula that would be acceptable to all, he said the committee must first agree on the responsibilities to be carried out by all the tiers of government.

He said an exhaustive analysis of the various responsibilities of the different tiers of government would help the committee determine whether to revise upwards or downwards the existing revenue allocation formula.

The SGF  cited the vertical disbursements of the federal government’s share of the current 52.68 percent allocation from the Federation Account to buttress his point.

The distribution of the disbursements, he said, includes Consolidated Revenue Fund (CRF) 48.50 percent; Federal Capital Territory, one percent; Natural Resources Development Fund (with the States as beneficiaries)1.68 percent; Ecological Funds, one percent (45 percent to the National Emergency Management Agency, North-East Development Commission, National Agricultural Land Development Authority and National Agency for the Great Green Wall), 55 percent to address ecological challenges at sub-national levels).

It also includes Stabilisation Account 0.50 percent (25 percent – 0.125 to the Nigerian Sovereign Investment Authority and 75% 0.375 managed by Office of the Attorney General of the Federation AGF and mostly utilized for emergency requests by States).

Within the Consolidated Revenue Fund, he said disbursements were made by the federal government for debt servicing, statutory transfers, payment of salaries of civil servants, workers’ pension and gratuities, capital supplementation, amongst others.

From the analysis, Mustapha said it was clear the bulk of the federal government resources are spent on and for the states and local governments.

He said when this was compared with the responsibilities from the Exclusive Legislative List, there would be a strong case to make for an increased allocation to the federal government.

However, he said considering the growing agitation for a review of the present vertical revenue allocation formula, President Muhammadu Buhari was committed to ensure that resources for development got to the poorest of the poor in the rural communities,  particularly the imperative to incorporate local communities in the country’s overall security architecture as well as enhancing equitable and inclusive national development.

Besides, the SGF said the decision to propose the review of the existing vertical revenue allocation formula included the federal government’s increasing visibility in sub-national level responsibilities due to weaknesses at that level, in terms of primary health care, basic primary education.

Others are increasing level of insecurity and increased remittances to state and local governments through the value added tax sharing formula, where the federal government has only 15 percent and the state and local governments 50 and 35 percent shares respectively.

In considering the proposal, the SGF urged the committee to be constructive, bearing in mind the dwindling national revenue base and the imperative for states internally generated revenues.

“Any review of the vertical revenue allocation formula must be consistent with the constitutional responsibilities of all the tiers of Government,” he said.

“Until such a time that the constitution is fully reviewed and more responsibilities are taken out of the Exclusive Legislative List, we might not be able to arrive at an equitable, unbiased and sustainable vertical revenue formula agreeable to all,” he added.

He said all Nigerians have agreed that the present revenue allocation formula, both vertical and horizontal, was long over-due for a review not just because the last one was done in 1992, but also contemporary issues since then, such as heightened insecurity, decaying infrastructure, need for appropriately matching statutory functions and tax powers, need to be taken into consideration in the revenue allocation decision making processes.

The vertical revenue formula icovers sharing of revenue between Federal, State and Local governments.

The horizontal revenue allocation review involves how revenues would be shared among states and local governments.

Commiitment to fair, equitable, just formula
In his welcome remarks, Chairman of RMAFC, Elias Mbam, restated the commitment of the agency to ensure a successful review process that would finally produce a fair, just and equitable revenue allocation formula.

Mbam said the public hearing was the last in the series organised by the Commission in the last one month across the country’s six geo-political zones to collate the views, opinions, and recommendations from interest groups and other Nigerians from diverse backgrounds on the proposed new revenue formula.

He said the review was in line with the provisions of the 1999 Constitution (As Amended), which empowers the Commission to periodically review the revenue allocation formulae and principles in operation to reflect the changing socio-economic, cultural and political realities.

The environnment since the last review in 1992, the Chairman said, has changed significantly, necessitating the commencement of the process of reviewing the subsisting vertical revenue allocation formula among the three tiers of government.

To ensure an all-inclusive participation in the process, he said the Commission invited memoranda from stakeholders through advertisements in both print and electronic media, apart from the public hearing sessions in the six geopolitical zones.

Abuja makes case for special funding status
The Minister of the Federal Capital Territory (FCT), Mohammed Bello, made a case for a special funding status for the territory, to enable it handle the massive expansion in infrastructural requirements, to take care of the rapidly developing city and match its fast growing population.

He said the development of Abuja should be seen as a fully joint national project, since the federal capital territory was envisaged by its founding fathers over 41 years ago as a home for every Nigerian.

“For us to really achieve the goals that established Abuja and the Federal Capital Territory, we have to work out a funding mechanism for Abuja,” he said.

Apart from finalizing the Abuja master-plan and concept, the minister said the present system of funding, where Abuja is seen as a small company of the federal government of Nigeria’s budget, cannot handle the giant projects it has to build to befit its status as a mega city.

In terms of capital projects related to roads, the FCT authorities have a total of 137 ongoing projects,with outstanding liabilities of about N82billion.

To complete these projects, he said  a total of N800billion would be required as at July 2021, against a budget of about N67billion pending bedore the National Assembly.

In his response, Mbam assured the minister that the proposed new revenue formula would be tied directly to the responsibilities of each tier of government.

“The more responsibilities we have, the more revenue, and the less responsibilities we have, the less revenue,” he said.

He urged the states to step up their efforts to boost their inyernally generated revenue to arn more revenue.

The RMAFC Chairman restated his confidence that the committee would conclude its assignment and submit its report to the President before the end of December 2021.

Backstory 

The proposal for the review of the existing revenue sharing formula approved for the three tiers of government during the Olusegun Obasanjo Administration.

Over the years, there have been agitations for a review of the formula to direct allocation of the revenues more towards grassroots development.

By implication, the agitators were demanding a reduction of the allocation to the Federal Government in favour of the States and Local Government councils.

In 2013, the RMAFC said it resolved to undertake a review to achieve a balanced development of the country.

Pursuant to that objective, the Commission said it embarked on a nationwide consultation in the 36 states, to solicit inputs in the decision-making process from notable persons, including traditional rulers on the issue.

By December 2014, the Commission said it developed a new revenue formula to submit to the government for consideration and approval.

More than seven years since the proposal was submitted, approval and implementation were stalled, resulting in the RMAFC constituting a standing committee in 2019 to look at the proposal again to accommodate fresh concerns.

One of such concerns was the need to ensure diversification of the nation’s revenue base beyond the traditional areas of oil and gas, for a more sustainable growth and economic development.

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