Economy Politics

The Politics of Revenue Allocation Formula

The Politics of Revenue Allocation Formula- By Yushau A. Shuaib

Hamman Tukur

Hamman Tukur, Chairman RMAFC

“The new Revenue Formula is scientifically collected, statistically analyzed and systematically presented devoid of emotion, sentiment and political hanky-panky” Engr. Hamman A. Tukur Chairman RMAFC

It seems another political impasse may brew over the recent request of President Olusegun Obasanjo to withdraw the Revenue Formula he had submitted to National Assembly due to the allegation of circulation of its fake Bills. Already there are discontent tunes from some tiers and also bewilderment amongst leadership of legislative arms. The commotion over contentious fiscal issue is unnecessary if there is full comprehension of the political economy of revenue allocation formula.

The issue of revenue sharing, which has been generating heated public debate, remains a constant feature of discourse in our nationhood even before our independence. The sharing of proceeds from natural endowment, though not from exploration by host communities, has weakened development of other natural resources by the citizenry, as the desire is to partake in the national cake. It was in view of the persistent grievances by federating entities that several ad-hoc bodies were assigned to fashion out equitable sharing formula for economic empowerment and peaceful coexistence. Reports of some of these panels were implemented, some halfway while others were dumped in the archives for probable references. Notable reports were received from Raisman Commission 1958, Aboyade Technical Committee 1977, Okigbo Panel1979 and National Revenue Mobilisation Allocation and Fiscal Commission 1992.

On the inception of the new democratic dispensation, after several years of civil rules, the 1999 constitution is very explicit on the issue of revenue sharing with Section 162(2) states: “The President upon the receipt of advice from the Revenue Mobilisation Allocation and Fiscal Commission, shall table before the National assembly proposals for revenue allocation from the Federation Account… provided the principle of derivation shall be constitutionally reflected in any approved formula as not less than thirteen percent of revenue accruing to the Federation Account directly from any natural resources.” Also the Third Schedule (N) of the same Constitution empowers the Commission to “…review from time to time the revenue allocation formulae and principles in operation to ensure conformity with changing realities.”

It was in view of the above constitutional provision that on its inauguration in September 1999, the Hamman Tukur-led Revenue Mobilisation Allocation and Fiscal Commission (RMAFC) earnestly started the process of devising a new revenue formula by undertaking a study of relevant literatures and experiences of other federations. This was followed by publicized request for public memoranda from the stakeholders, interested groups and general public for necessary inputs towards achieving maximum public participation. It would be necessary to state that the 1992 Revenue Formula, backed by Decree 106 was in place and used into the new era of democracy, but could not address changing realities like the increase in numbers of states (6), local government councils (185) and the constitutional provision that increases derivation principle from 1% to 13%. The formula, which existed for almost ten years, gave Federal Government 48.5%, State Government 24% Local Government 20% and Special Fund 7%. The Special Fund that was managed by Federal government gave FCT 1%, Ecological Fund 1%, Stabilization 1.5% and Development of Natural Resources 3%.

By first quarter of year 2001, the RMAFC had received more than a million pages of memoranda, through tours, visits and submissions from stakeholders at Federal, States and local government councils. There were also physical representations where President Obasanjo in his characteristic humility left the cozy state house and led the federal government delegation for an open interaction with RMAFC to present a case for fair revenue. Similar visits were paid to the Commission by states’ governors and Chairmen of Local government councils through the then ALGON. Considering enormous lobbying through the written and oral submissions, the Commission had to seek the service of professionals for systematic and scientific analyses of the collated data. The consultants were chosen from reputable academia and credible institutions across the country.

By the time collations were made and analysed, a critical study on constitutional responsibilities of each tier was done to assigned commensurate indices through percentages to the beneficiaries. It was therefore not surprising that it took the Commission almost a whole year to submit its first proposal to President Olusegun Obasanjo in August 2001, which was subsequently passed to the National Assembly in its original form. That initial proposal gave FG 41.3%, States 31%, LG 16% and Special Fund 11.7%. The Special Fund was subdivided as follow FCT 1.2%, Ecology 1%, National Reserve Fund 1%, Agric/Solid mineral fund 1.5% and Basic education and Skill Acquisition (BESA) 7%. The burden of funding primary education by Local Government councils, which resulted to rampant cases of Zero-allocation, necessitated the transfer of that responsibility to BESA for direct funding under Special Fund. That gesture was intended to completely eradicate the zero allocation syndromes.

That proposed revenue formula remained with National Assembly for almost eight months before the Supreme Court Verdict of April 2002 on Resources Control nullified the Special Fund in the existing formula, which invariably affected the fate of the pending formula with legislators. Considering this development, there was an urgent need to address the issue to avoid dislocation in the monthly federation account disbursement and to also recall the then new formula to reflect changes as result of the apex court ruling.

While the Commission attempted to devise a temporary measure to avoid unnecessary fiscal vacuum, the federal Government through an Executive Order, took the initiative by taking over items on Special Fund to manage on behalf of the Federation. Therefore by May 2002, the share of FG became 56% while State and LG maintained their 24% and 20% respectively. But due to outcry from other tiers, the FG in July 2002 through second Executive Order magnanimously ceded 1.32% from its allocation where a new picture emerged with states receiving 24.72% and LGcs 20.60 while FG receives 54.68%.

Since an Executive Order, as authoritative interim measure which was legalized by a subsequent ruling of Supreme Court, the Commission had to devise another strategy in making sure that the revised formula is fair and just without emotion or sentiments. It therefore withdrew the early submission from National Assembly and asked for fresh inputs from stakeholders and general public on how to apply the Special Fund. The response was also very overwhelming in the sense that, Federal Government representatives led by the Secretary to the Government of Federation made written and oral submission just as did the states. But regrettably, the local Government councils could not make representations because appointees of State Governors have replaced most of their elected officers at the grassroots. Therefore, in the absence of democratic government at the lower tier, the states made case for them.

With the Special Fund, as the new bone of contention, the Commission meticulously reexamined fiscal responsibilities of the various tiers of government and existing revenue allocation system in the country towards revising the formula. It also undertook detailed investigations of various functions of the tiers as enshrined in the Constitution in assigning percentages on responsibilities to respective tiers. It also considered, for just sharing, vertical indices such as population, equality, landmass, social development and internal revenue efforts amongst other important parameters. It therefore took the Commission another hectic and tedious journey in proposing a final revenue formula, which it finally submitted to the President in December 2002 who in turn graciously tabled it to the National Assembly in January 2003. The final formula with the National Assembly since then gives FG 46.63%, States 33% and LGs 20.37%.

Some of the features of the new revenue formula include treatment of FCT as if it were a state and its areas council too, to be treated like local government councils in the statutory disbursement. The implementation of derivation funds in the proposal, will involve the participation of host communities and traditional institutions. There is also a compulsory prorated contributory fund to address problems that are common and peculiar sources of discontent among the tiers. That fund will be used to fund ecology, technology research, solid mineral development, national reserve and national agricultural development.

It can be said that before the Commission proposed the new formula, it considered different views, scientifically used deductive analysis from collected data but temper the expected rigidity to accommodate socioeconomic and socio-political nature of the exercise. At the end, mix analysis was employed to satisfy the principles of Pareto Optimality and conforms to the utilitarian concept and policy of the greatest happiness for the greatest number of the stakeholders. While the Commission may have submitted its advice in form of a proposal, no one really knows who is responsible for drafting the bill that is generating anxiety presently.

In conclusion, it could be said that the proposed new revenue formula will ensure that the current resources are distributed fairly, equitably and justly to all beneficiaries, while it would enhance national growth, development and cohesion. But one serious question that needs to be asked is whether this tasking and consuming exercise can be tempered with or altered without recourse to its technical formulator?

This article originally appeared in Comet Nov15, This day Nov17, New Nigeria Nov18, Daily Times Nov18, Nigerian Tribune Nov19, Sun Nov20, Financial Standard Dec15, 2003


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Yushau Shuaib

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