Following strident calls for a review of the extant revenue sharing formula that favours the Federal Government far above the states and local governments, the Revenue Mobilisation Allocation and Fiscal Commission (RMAFC) recently unveiled a new revenue formula aimed at addressing the obvious gaps by slightly slashing what accrues to the central government. The RMAFC’s new proposed revenue formula was submitted to President Muhammadu Buhari on April 7 by the head of the commission, Dr. Elias Mbam.
Under the new revenue formula, the Federal Government gets 45.17 per cent, states 29.79 per cent, and local governments, 21.04 per cent, while 13 percent is retained as derivation. Hitherto, the Federal Government got 52.68 per cent, the 36 states, 26.72 percent, LGAs 20.60 per cent and derivation 13 per cent.
The RMAFC might have taken certain things into consideration before arriving at the proposed new revenue formula, even though some Nigerians had wished that it gave more to the states and local governments, the tiers of government closer to the people. However, the marginal increase in the states’ allocation in the proposed new formula is a good starting point. Considering that the states and LGAs are currently facing fiscal difficulties, a higher allocation to them under the new formula would have been better. Since the present formula was designed in 1992, and its implementation commended during the tenure of former President Olusegun Obasanjo, more states were created in 1996, and local governments increased to 774 from its previous 589 LGAs.
The Chairman of the Commission also explained that under Special Funds, 1.0 per cent provision was recommended for Ecology, 0.5 per cent for Stabilisation, 1.3 per cent for development of natural resources and 1.2 percent for the Federal Capital Territory (FCT). Mbam said the commission consulted widely with stakeholders in its public hearings in all the six geo-political zones in the country, administered questionnaires and studied what is obtainable in other countries with similar fiscal arrangements like Nigeria to draw useful lessons from their experiences. It appears it will take some time before the implementation of the new formula takes effect because President Buhari said he would await the final outcome of the constitution review process before presenting the RMAFC’s report to the National Assembly.
There is no doubt that the country needs both vertical and horizontal review of the revenue sharing formula. The one in operation was formulated almost 30 years ago. Contemporary challenges have made a new one that will favour states and local governments imperative. For instance, infrastructure decay, insecurity and dwindling revenue accruing to states make a downward review of the allocation hitherto given to the federal government. The Secretary to the Government of the Federation (SGF), Boss Mustapha, had last year, at a Town hall meeting organised on the new revenue formula, in Abuja, agreed that a downward review of the federal government’s allocation has become necessary. He recommended 50.65 per cent for the FG, down from the present 52.68 per cent, states, 25.62 per cent, and 23.73 per cent for LGAs.
Mustapha’s recommendations notwithstanding, the proposed new revenue formula, though a good development, cannot stop the agitation for more revenue to the states. All over the world, revenue and resource allocation have always been a function of the level of responsibilities attached to the different tiers of government. The states are burdened, if not overwhelmed by multiple challenges, top of which is worsening insecurity in their domains. Therefore, the current revenue formula and even the proposed one may not help matters. The only solution to the overdependence on Abuja for monthly handout by states and local governments is a return to fiscal federalism. We enjoin the 36 states to increase their revenue generation capabilities through economic diversification.
It is time to formulate a realistic new revenue formula that will minimise the present servile situation where the states depend so much on federal allocation. There is need to review some of the 68 items in the exclusive legislative list and devolve some to the states, in line with the practice of true federalism. It is sad that the central government is saddled with so many responsibilities that should be handled more effectively by the states, such as education, health, agriculture and rural development.
The federal government can do with a few and concentrate more on defence, aviation, currency, foreign affairs and policy formulation. This is the essence of devolution of powers. Nothing should further delay the present process to have a new, equitable and just revenue sharing formula. We urge the National Assembly to address some of the grey areas in the proposed revenue sharing formula before President Buhari signs it into law.