On the New Revenue Formula

On the New Revenue Formula – By Yushau A. Shuaib
Recently, the Revenue Mobilization Allocation Fiscal Commission released a new revenue formula which would constitutionally last for the next five years. Some of the features of the formula include the reduction of the Federal Government’s allocation from 48.5 to 41.3 percent, increase of the state government allocation from 24 to 31 percent, while local government councils have their allocation reduced to 16 percent from 20 percent, due to the elimination of indiscriminate deduction from source to the lowest tier of government.

The horizontal formula for the disbursement of the fund amongst state and local governments is on the basis of equity, population, internal revenue effort, landmass, rural roads/inland waterways, education and health.

In order to address some militating ecological problems, Basic Universal Education, agriculture and solid mineral development and advancement in science and technology, the Special Fund was also increased upward from 7.5 to 11.7 percent.

Even though there were commendations from well informed Nigerians, since the submission of the new proposal, some arguments were raised which generated more debates on the need for acceptable and fair revenue allocation formula. For instance, some local government officials and the Nigerian Union of Local Government Employees (NULGE) members, who have described it as not being fair to the grassroots, also forgot that the burden of funding primary education has been removed from the shoulders of local governments.

On the part of the state governments whose allocation was enhanced and substantially improved upon, no reaction came. Governors Olusegun Osoba and Abdullahi Adamu of Ogun and Nasarawa States respectively who were there during the submission, with a few other governors, told State House reporters that they could not speak for other state executives until they met and studied the proposal. They had met thrice immediately after the report and they exhibited a rare silence, a sign of endorsement of the formula, without necessarily sounding like the proverbial Oliver Twist.

But surprisingly, only Governor Bola Tinubu of Lagos stated that the allocation was not acceptable to the states. Even though he failed to give any tangible reason against the proposal, apart from his argument that the Federal Government allocation should be reduced further. One wonders if he is the elected spokesperson for other state chief executives.

Another issue that has generated controversy from the recommendation is the special fund, which is erroneously believed by some to be an additional fund and exclusive to the Federal Government’s allocation. Some even go further to wonder if it is not the same FG that controls the special fund. This is indeed a wrong insinuation. There is a difference between tiers of government as distinguished entities (i.e., FG, State and Local Government councils) and the Federal Republic of Nigeria. In the words of Engr. Hamman Tukur, the Chairman of the Revenue Mobilization Allocation Fiscal Commission, the essence of the special fund is to form a basis for effective operation of certain specially identified problems of the federal republic as an entity. The funds are to tackle peculiar problems and to deal with joint statutory responsibilities of the constituents of the federal republic of Nigeria that require special attention.

While the federal government is seen as the first tier, followed by state and local governments, the Federal Republic of Nigeria is the composition and embodiment of all tiers. The special fund is specifically meant for the republic of Nigeria, where all the tiers have a say in the application of the fund. All the tiers are the beneficiaries of quarterly ecological disbursements and also the stabilization account. The stabilization Account, which is to be known in the new recommendation as National Reserve Fund, is saved for the rainy day and to cushion the effects of any downturn in the nation’s economy, especially whenever there are shortfalls in the monthly allocation to state and local governments. This last resort is to correct the imbalance in the sharing of the accruals to the federation account.

It is based on the common interest of all the beneficiaries and stakeholders that there are these joint sessions of components of the federal Republic of Nigeria where such engagements as the Federation Account Allocation Committee, Council of States, National Economic Council and other meetings are held regularly on issues that border on security, socioeconomic development and on the appropriation of the Special Fund.

It is imperative to note that federalism is a constitutional arrangement in which the federating units form a unit with defined autonomy in their internal affairs, and in such a manner that lawmaking powers and functions are distributed accordingly with some to federal, state and others to local governments. Another important guiding philosophy in the approach of the commission has been fairness in revenue allocation, which is distributive justice. No tier of government is worse off in its relative positions given the fiscal realities on ground.

There are those that are of the view that the new seven percent allocations to the Universal Basic Education programme should not be handled by any special agency of the Federal Republic of Nigeria. It is pertinent to ask what would have been the fate of the primary school system if local government administrators were directly in charge of teachers’ remunerations in the face of the regular reports of misappropriation of funds. And why is it that for years, primary school teachers have hardly gone on an industrial action? This is purely due to the intervention of the special education body, which is controlled at the federal, managed at the state and implemented at the local government levels.

Many have admitted that at the LG level, more caution should be exercised given the high level of irresponsibility that has been displayed in the name of governance. It is common knowledge that most local governments have abandoned their responsibilities to people at the grassroots. Most simply collect the allocations and share among their officials, while social services meant to be provided are neglected outright. In fact, there is ample evidence to indicate that the quality of personnel running the local bureaucracy still needs much to be desired. With this pitiable scenario and unwholesome acts at the grassroots, with glaring lack of accountability, how can anyone canvass for increase in revenue allocation to be managed and controlled by this tier when it does not have the executive capacity to absorb such huge funds at its possession? But with all the inconsistencies at the grassroots level, the Commission miraculously removed the burden of zero allocation and added on the balance. Therefore, those local governments that are receiving “Zero allocation” (due to direct deductions) before the proposed new revenue formula, would henceforth collect more than 16 percent, against the initial zero allocation. This is a more realistic and nondeductible 16 percent disbursement from the federation account monthly.

From the foregoing, one may realize that the state and local governments and, to some extent, the FG, are better off than before in the new revenue formula which is coming after the last adjustment of 1992. It is therefore, necessary to enjoin our political office holders to utilize the new opportunity to address the problem of industrialization, by investing in the productive sector which will also improve their internal revenue efforts and generate more employment opportunities at all levels.

This article originally appeared in National Interest September 12, The Punch September 25, Nigerian Tribune September 11, Post Express October 12, Daily Times November 28, Daily Trust November 28, 2001


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Yushau Shuaib

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