The issue of revenue allocation formula has always been contentious in Nigeria. For many Nigerians, the Federal Government (FG) has been taking a large chunk of the revenue for years. This is despite the enormous responsibilities entrusted on the sub-national governments. Currently, FG takes 52.68 per cent, while states and local governments take 26.72 per cent and 20.60 per cent, respectively. Thirteen per cent derivation revenue goes to the oil-producing states.
The intervention of the military in governance in 1966 largely led to the increased centralisation of revenue administration in Nigeria. Successive military governments allocated more resources to the central government to the detriment of states and local governments. The present revenue allocation formula was last reviewed in 1992. Another review is long overdue.
That was why the Chairman of the Revenue Mobilisation, Allocation and Fiscal Commission (RMAFC), Chief Elias Mbam, reportedly gave assurances that a fair, acceptable and credible new revenue formula would be put in place to tackle new development realities in the country. That was after a successful engagement with various stakeholders across the country for a new revenue sharing formula.
In one of such recent engagements, the FG proposed a new revenue formula which reduces the allocation to the centre from 52.68 per cent to 50.65 per cent, a difference of 2.03 per cent. The proposed formula also reduces that of the states from 26.72 per cent to 25.62 while increasing the allocation to the local governments from 20.60 per cent to 23.73 per cent. What this means is that the FG is gradually realising the importance of reviewing the revenue allocation formula in favour of the government that is closer to the grassroots. Although the reduction of the FG’s revenue is marginal, it is a good concession and a good starting point.
The Secretary to the Government of the Federation, Boss Mustapha, who gave the Federal Government’s position at a recent town hall meeting on the new revenue formula in Abuja, said the responsibilities shouldered by each tier of government should guide RMAFC in the new revenue formula. According to him, contemporary issues such as heightened insecurity, decaying infrastructure, need for appropriately matching statutory functions and tax powers, need to be taken into consideration.
The Federal Government’s position, according to Mustapha, was informed, among others, by the “Federal Government’s increasing visibility in sub-national level responsibilities due to weaknesses at that level, e.g. primary health care, basic primary education, 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 per cent and the states and local government share 50 per cent and 35 per cent, respectively.”
It is obvious that states and local governments shoulder more responsibilities than the Federal Government. They tackle such issues as desertification, ecological and flooding problems as well as primary health care and education. Owing to poor allocation to them, these problems have persisted in Nigeria. Primary health care, for instance, remains out of reach of many people. This has led to high maternal and child mortality in the country.
Besides, due to the fact that the Federal Government controls the major sources of government’s revenue, there is concentration of tax jurisdiction and collection at the federal level. COVID-19 pandemic has made it imperative that government relies more on tax to generate revenue. The revenue allocation review should also look into this. It is expected, therefore, that more revenue should go in favour of states and local governments.
If more powers are also devolved to the states, the FG will concern itself with defence, currency, foreign affairs and a few others as obtains in other federations. It is time the Federal Government reviews the 68 items on the Exclusive Legislative List and the 30 items on the Concurrent List with a view to achieving accelerated development in the country. States should be able to take over all roads, schools, health, agriculture and others. This should come with allocation of more resources to them. It will not only engender greater development in the states, it will also ensure political stability and good management of our diversities as a nation.
By and large, the federating units should come together to decide on ideal allocation of funds to the different tiers or levels of government. This is where national dialogue comes in. It is only fiscal federalism that will settle this issue of revenue formula. If states control their resources and pay taxes to the FG, this issue of depending on Abuja every month end to foot their bills will be a thing of the past.