New revenue allocation formula faces fresh hurdles
Buhari receives proposal for new revenue sharing formula from Elias Mbam, RMAFC chairman

BY EMEKA EJERE

Those yearning for the review of Nigeria’s vertical revenue allocation formula would have been elated by the just released recommendations of the Revenue Mobilization Allocation and Fiscal Commission (RMAFC) should receive express approval.

But that celebration would have to wait until the National Assembly is done with the ongoing constitutional review process because some of the proposed amendments would have a bearing on the recommendations contained report.

The proposal seeks a 3.33 per cent reduction in the current federal government allocation and on the other hand an increase of 3.07 per cent and 0.44 per cent for the states and local governments. It also seeks an increase of .2 per cent for the Federal Capital Territory (FCT) and a decrease of .38 per cent for Development of Natural Resources. The last time a review was done was in 1992.

Recall that the RMAFC had revealed that the revised revenue sharing formula would be ready for submission to the federal government by the end of 2021. The review is coming 28 years after the last one was done in 1992 following agitation by stakeholders that more revenue should be made available to the state and local governments.

The current revenue-sharing arrangement has the federal government (including special funds) getting 52.68%, the state governments receive 26.72%, while the local governments get 20.6%.

However, if the proposal is approved, the federal government will receive 45.17 per cent of the money from the consolidated revenue fund of the federation, made of oil and gas sales proceeds as well as tax and revenue from Customs.

The states of the federation will receive 29.79 per cent while 774 local governments will receive 21.04 per cent of the funds. The proposals were submitted to President Muhammadu Buhari on Thursday, and must be passed into law by the National Assembly to be effective.

But Buhari said he would await the outcome of the ongoing constitutional review process before presenting the report to the National Assembly as a bill for enactment. President Buhari stated, Ordinarily, I would have gone ahead to table this report before the National Assembly as a Bill for enactment.

However, since the review of the vertical revenue allocation formula is a function of the roles and responsibilities of the different tiers of government, I will await the final outcome of the constitutional review process, especially as some of the proposed amendments would have a bearing on the recommendations contained herein.

Buhari revealed that the recommendations in the report will amongst other things, establish local government as a tier of government and the associated abrogation of the state/local government account; moving airports; fingerprints, identification and criminal records from the exclusive legislative list to the concurrent legislative list, empowering the RMAFC to enforce compliance with remittance of accruals into and disbursement of revenue from the Federation Account as well as streamlining the procedure for reviewing the revenue allocation formula.

President Buhari declared that for Nigeria to have a lasting review of the present revenue allocation formula, there must first be an agreement on the responsibilities to be carried out by all the tiers of government.

He noted that the proposal seeks a 3.33% reduction in the current Federal Government allocation and on the other hand, an increase of 3.07% and 0.44% for the States and Local Governments.

He added that with regards to the Special Funds, the report by the RMAFC proposed an increase of 0.2% for the Federal Capital Territory (FCT) and a decrease of .38% for the Development of Natural Resources.

The President recounted that the federal government also made its input into the process of reviewing the vertical revenue allocation formula based on existing constitutional provisions for roles and responsibilities for the different tiers of government.

“We must note the increasing visibility in Sub-national level responsibilities due to weaknesses at that level. For example: Primary Health Care; Basic Primary Education; Levels of insecurity, and; Increased remittances to State and Local Governments through the Value Added Tax sharing formula, where the Federal Government has only 15% and the States and Local Government share 50% and 35% respectively,” he said.

According to the RMAFC chairman, Elias Mbam, who submitted the report, the major reasons for the exercise is that since the last review was conducted in 1992, the political structure of the country has changed with the creation of six additional States in 1996, which brought the number of states to 36. The number of local government councils also increased from 589 to 774.

“There have been considerable changes arising from the policy reforms that altered the relative share of responsibilities of the various tiers of government such as deregulation, privatization and the lingering controversies over funding of primary education, primary healthcare,” he said.

Mbam said the leading philosophy behind the proposed review was guided by the need for distributive justice, equity and fairness as enshrined in relevant Sections of the 1999 Constitution (as amended).

He added that the principles took into cognizance the indivisibility of the country, public opinion and weighted constitutional responsibilities and functions of the three levels of government.

Meanwhile, analysts are divided over the proposal for a new revenue formula for the country. While some see it as a major step towards addressing some of the recurring revenue crisis within the federating units, others say anything short of true fiscal federalism cannot resolve the nations revenue problem.

“I have always held that more should be given to the states and local governments, if the issues of massive infrastructural deficits, insecurity, health, education and so on, are to be adequately addressed,” a public affairs analyst, Mr. Vincent Alakwe told BusinessHallmark.

Alakwe believes that the present revenue formula gives too much to the federal government, while leaving the states and local governments, which are closer and can impact the people more with little or nothing.

In his submission, an economist, Mr. Victor Ajayi, noted that the only way to free the country from its revenue quagmire is true fiscal federalism.

“We must stop this lazy culture of rushing to Abuja every month for handouts and begin to look the way of allowing every state to grow at its own pace,” Ajayi said.

This culture of going to Abuja to share money preventing the states from seeing the gold mines the states have been endowed with.
Just let these states manage whatever they have and pay tax to the centre, its as simple as that.

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