• Fri. Jun 9th, 2023

    Why Nigeria needs a new revenue sharing formula – RMAFC

    ByBassey Udo

    Aug 25, 2021


    The country requires a new revenue sharing allocation formula as the existing arrangement is inadequate for the changes in the socio-economic and political system as a result of several policy reforms in the country, the Chairman of the Revenue Mobilisation Allocation and Fiscal Commission (RMAFC), Elias Mbam, has said.
    Mbam who was speaking on the ongoing process to carry out the review said the current allocation formula, which has been in place for over 28 years since 1992 is long overdue for review.
    Apart from being overdue, the Chairman of the revenue mobilisation agency said other reasons that informed the current review included the change in the country’s political structure, with the creation of six additional states in 1996, which brought the number of states to 36, and local governments5 from 589 to 774.
    Besides, he said the review was informed by considerable changes as a result of policy reforms that altered the relative share of responsibilities of the various tiers of the government, including controversies over the funding of primary education, primary health centers, among others.0
    Mbam said the review was also necessitated by the inadequate and decaying infrastructure which has heightened widespread internal security challenges across the country.
    In addition, he said ecological challenges, like global warming, desertification, flooding and population explosion as well as the inability of the current formula to adequately address the obvious mismatch between statutorily functions and tax powers of the different tiers of government also informed the decision to embark on a fresh exercise.
    The agitation from the various interest groups, including states and local governments over the issue, he said, also informed the decision to carry out the review.
    Consequently, Mbam said the Commission has since commenced the review to update the existing vertical revenue sharing arrangement, to produce a fair, just, and equitable sharing formula that would be acceptable to majority of Nigerians.
    The vertical formula deals with formula for the allocation of revenues accruing to the government to the three tiers – Federal, states and local governments.
    The review exercise is in line with Commission’s mandate to review from time to time, the country’s revenue allocation formula to conform with the current realities.
    Specifically, part 1, paragraph 32(b) of the third schedule to 1999 constitution (as amended), empowers the Commission to review from time to time, the revenue allocation formulae and principles in operation to ensure conformity with changing realities.
    The law requires that any formula which has been accepted by an Act of the National Assembly shall remain in force for a period of not less than five years from the date of commencement of the Act.
    However, the current formula has been in place for over 28 years since it was approved in 1992.
    The current revenue sharing formula cedes the lion’s share of the revenue accruing to the Federation Account to the Federal Government, which takes about 52.68 lercent  (Including Special Funds), while the 36 State Governments take 26.72 percent and local government 20.60 percent.
    The formula also allows 13 percent allocation to the nine oil producing states of the Niger Delta region.
    Under the formula, the federal government’s share of the 52.68 percent of the allocation is further distributed into the Federal Governments Consolidated Revenue Fund (CRF)  48.50 percent; one percent each for the Federal Capital Territory (FCT) and Ecological Fund, and 1.68 percent for Development of Natural Resourcesas well as Stabilization Fund 0.50 percent.
    Over the years, the states have been agitating for a review of the formula to give them increased allocation of revenues in view of the increased responsibilities in terms the provision of education and other additional contributions to national development.
    To carry out the review, the RMAFC Chairman said the review would focus on the vertical allocation of the formula as they affect the Federal, States and Local Governments.
    He confirmed the Commission’s plan is to ensure the new formula would be ready before December 2021 for submission to President Muhammadu for approval before the onward transmission to the National Assembly for legislative consideration.

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