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Revenue Allocation System in Contemporary Nigeria Essay

One of the perennial problems which has not only defied all past attempts at permanent solution, but also has a tendency for evoking high emotions on the part of all concerned (each time it is brought forth for discussion or analysis) is the issue of equitable revenue allocation in Nigeria. It is an issue which has been politicised by successive administrations in Nigeria both Military and civilian regimes.

Indeed, in virtually all federations in which the constitution shares power between the central and regional or state governments and, for each level to be “within a sphere co-ordinate and independent” (Wheare 1963:93) enough resources need be allocated to each tier to justify their existence. For many years, Nigeria has been searching for an equitable revenue allocation formula that will meet the yearnings and aspirations of her federating units. The issue has remained elusive largely because the debate is based on revenue allocation, rather than focus on how to meet the nation’s economic imperatives; revenue allocation has often been dictated by or mired in geopolitical and ethnocentric considerations. Paradoxically, however, the debate has also emphasized more on revenue sharing than on generating.

In its chequered historical journey, revenue allocation has remained a central theme for various fiscal commissions and committees set up by either the military or civilian governments in Nigeria. Beginning from the Phillipson Fiscal Commission of 1946 to the Okigbo Commission of 1980 and recently, the Revenue Mobilization Allocation and Fiscal Commission (RMAFC), the objectives of each commission have remained the same or similar: To examine the extant fiscal issues of the nation and “make appropriate recommendations on the principles and formulae on how to share the national revenue to the three tiers of government in Nigeria”.

Some of the defunct commissions and committees had operated on ad hoc bases, but the RMAFC established in 1999, is now the constitutionally recognized body vested with the powers to draw up a revenue allocation formula, using certain allocative criteria. This is, however, subject to the consideration of the National Assembly. Indeed, since its inception, the RMAFC has made some efforts at designing a new revenue allocation formula. During the President Obasanjo administration, the RMAFC submitted to the National Assembly a revenue sharing formula of 41.3 percent to the Federal Government, 31 percent to the States and 16 percent to the Local Governments. The commission also recommended a provision of 11.7 percent as Special Funds. The Special Funds soon became part of a litigation process and was eventually struck down by the Supreme Court.

In nullifying the Fund, the Supreme Court indicated that under the current law on revenue allocation, it is unconstitutional to make provision for Special Funds in drawing up a revenue allocation formula. The verdict of the Supreme Court created some sort of fiscal stampede. Consequently, the president invoked an Executive Order that introduced a new revenue allocation of 56 percent to the Federal Government, 24.72 percent to the States and 20.60 percent to the Local Governments. The states resisted the jumbo allocation of the Federal Government, forcing the latter to reduce its figure to 52.68 percent and increased that of the States to 26.72 percent.

Nevertheless, the clamour for an equitable revenue allocation remains a thorny issue as the contentious debate persists. The states continue to criticize the present lopsidedness in revenue sharing, insisting that the formula is disproportionately skewed in favour of the Federal Government, thus putting enormous resources at the center. The Federal Government contends that it has immense responsibilities of providing for education, health services, roads, energy and national security among other areas. The Derivation Principle also introduces yet another dimension to the thematic debate on revenue allocation.

The principle which is a component of Fiscal Federalism, is a 13 percent figure set aside from the Federation Account for disbursement to the mineral producing states. The disbursement is, however, based in proportion to the size of the revenue derived directly from that particular mineral resource in the state. The littoral states bemoan the 13 percent derivation as mere tokenistic allocation. They argue that oil exploration and exploitation come with considerable measures of economic and environmental degradation on the oil communities. Regarded as the proverbial Geese that lay the Golden Eggs, the oil producing states continue to agitate for an upward review of the 13 percent derivation to tackle the specific developmental challenges in the region. Yet, others have made a case that each state in the Federation should be granted full economic autonomy to exploit and manage its own natural resource(s).

Oil remains the main foreign exchange earner and contributes over 80 percent of Nigeria’s Gross Domestic Product (GDP). Oil exploration, needless to say, has brought untold hardship to the people of the Delta region. It is only fair and just that any revenue allocation calculation should consider an increase in the current 13 percent derivation. It is important to recongnize that the states and local governments are the two lower levels of governments that are closer to the people. The vast majority of Nigerians live in the rural areas where there are little or no basic amenities. This places the states in strategic positions to identify the critical needs of the people at these levels of governance. Therefore, it stands to reason that a new revenue allocation has to devolve more financial resources from the center to the states and local governments respectively.

With increased revenue appropriation to the two lower tiers of government- all things being equal- the states and local governments can build more roads, provide health services, transportation, education and create employment opportunities for the rural dwellers. If developmental efforts, enhanced by increased revenue receipts are carried out simultaneously in all the 36 states and 774 local governments in Nigeria, ipso facto, the entire country will enjoy economic vitality and improvement in human condition.

However, agitating for more revenue allocation for the states and local governments also comes with the public expectation of fiscal discipline on the parts of the recipients. The frequent media reports of executive public fund diversion in some of the states leave a sour taste in the bud and negate the purpose of the agitation ab initio. Perhaps, it might be necessary to establish a Revenue Allocation Monitoring Commission that will liaise with existing agencies of Due Process to ensure prudent utilization of allocated funds. On another note, the states’ excessive dependence on the monthly oil money (RMAFC’s) allocation from the Federation Account must wear a new garb. The states can be encouraged to vigorously look inward and explore untapped avenues for revenue generation. Oil is just one of several mineral deposits across Nigeria. Large-scale mechanized agriculture offers a great potential as an alternative to this present mono-product oil-based economy. In addition, a state government can introduce attractive business policies to woo investors. This can provide a veritable source of generating internal revenue.

It may not be possible to formulate a revenue allocation arrangement that will be wholly satisfactory to the three tiers of government, but the relevant stakeholders can take steps, devoid of hegemonic interests, and make sincere contributions into the revenue allocation formulation process. This will douse the acrimony that appears to define the current debate. Each level of government has to clearly assess and review its own specific objectives in terms of goods and service delivery, in sync with changing economic realities. The RMAFC must strive to generate a reliable and current national data base for making revenue sharing decisions. These steps will in turn provide a harmonious platform in formulating a new paradigm for an equitable revenue allocation in Nigeria.


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