THE demand by the Nigeria’s Governors’ Forum (NGF), chaired by Dr Kayode Fayemi of Ekiti State, to review the revenue allocation sharing among Federal, States and Local governments is not only desirable but long overdue. Currently, the Federal Government takes 52.68% of the total revenue, states take 26.72% while local governments take 20.60%.
THE nine oil-producing states receive 13% revenue as derivation from the oil revenue. As a point of note, this revenue sharing formula was designed during the administration of former President Olusegun Obasanjo.
PREMISED on the new N30, 000 minimum wage and financial shortcoming to fulfill states obligations Governors are demanding that the federal government’s allocation be slashed to 37% while states and local governments take 42% and 23% respectively.
HISTORICALLY , revenue allocation formula has always been a point of controversy, which has defied past solutions due to political shenanigans than the principle of equitable distribution of resources. During the reign of Arthur Richard as Governor of Nigeria in 1946, there was gradual evolution of a revenue sharing system mainly based on the derivation principle as follows: Northern Region: 46%: Western Region: 30% and Eastern Region: 24%. Sir John Macpherson replaced Governor Richard and the principle of ‘need’ and ‘national interest was introduced into revenue sharing. Sir Oliver Littleton, in 1953, reinstated the derivation principle, placing less emphasis on ‘need’ and ‘national interest’. For instance, Federal Government took 50% of the general import duty and excess duty on tobacco while 50% went to the regions on derivation basis; 100% of import duty on motor spirit and mining rent went to the regions while both levels shared the export duty on hides and skins on a 50-50 basis.
THE discovery of oil in 1958 ended this arrangement. This led to the establishment of a Distributable Pools Account (DPA) and weakened the derivation principle. The regions should have authority over produce sales tax and sales tax on motor vehicle fuel.
IN all these, the West was the wealthiest due to cocoa boom.General Yakubu Gowon replaced regionalism with states after creation of 12 states, bringing “population” as a major principle for Resources Allocation Formula. The onshore/ offshore dichotomy was also introduced. Offshore revenues were shared as 60%; 30% and 10% for Federal Government, State Joint Account and Special Grants Account respectively.
IN 1976, General Murtala Mohammed, via Decree Number 12 of 1976, increased the number of states in the country from 12 to 19 and this further weakened the allocation for each state. Some of them became increasingly dependent on grants from the federal government. The proposal by Prof. Aborisade-led committee to share RAF as 60%, 30% and 10% for Federal Government, states and local government areas respectively was extensively criticized and rejected.
In 1979, President Shehu Shagari constituted a Committee headed by Dr. Pius Okigbo to review the “formulae for revenue allocation having regard to such factors as the national interest, derivation, population, even development, equitable distribution and the equality of states. It recommended 58.5%, 31.5%; 10% for FG, states and LGAs respectively. States allocation was later increased due to agitations
IN 1984, Major General Mohammadu Buhari promulgated the Allocation of Revenue (Federation Account) Amendment Decree Number 36 of 1984. It reserved 55% for federal, states took 32.5%, and local governments got 10% while 2.5% was retained for the development of mineral producing areas. In 1992, General Ibrahim Babangida’s regime shared RAF in the following features: FG 48.5%, States 24%, Local Government Councils 20% and Special fund 7.5% (which was distributed: FCT 1%, Ecology 2%, Stabilisation 1.5% and Natural Resources 3%).
THE General Sani Abacha’s regime only recommended 13% of the revenues derived from mineral producing areas to the affected state governments. In March 2004, the then Minister of Finance, Dr. Okonjo Iweala issued a letter modifying the second Executive Order that increases state allocation to 26.72% and reduces FG to 52.68%.
WE thus believe that call for the increase in states and LGAs’ allocations a welcome development as there cannot be a better time for such than now. Despite the huge amount of money accruing to the Federal Government over the years, it has failed in its obligations to cater for the welfare of Nigerians, especially in areas like security, health, education and infrastructural development. Addressing these deficits will remain a mirage when the Federal government continues to take the lion share of revenue allocation.
RESOURCE allocation in a development-focused country is based on fiscal federalism, which is driven by the principles of resource autonomy, adequate resources to discharge functions, reduced administrative cost, accountability and control over resources. Adopting these principles in the RAF will make each of the states to develop at its own pace.
The federal government currently has 64 items on the Exclusive list, which makes it too powerful and burdened. Roads, health, education, water, agriculture and social amenities are day to day needs of the people and it is erroneous these are controlled by the federal government. It needs to devolve more functions to the lower tiers of government, who are closer to the people, for effectiveness. We observe that too much money allocated to the Federal level has led to untamed corrupt practices and duplication of offices and increased cost of administration. Reducing the allocation to the FG will bring about prudency, judicious use of resources and development of the grassroots.