[ad_1]
THE REVENUE ALLOCATION FORMULAR IN NIGERIA: A CONTINUOUS SEARCH
Victor I. Lukpata (Ph.D)
ASTRACT
Resource disbursement is a fundamental fiscal issue in the practice of Nigerian federalism. This is largely so as the nation, has federating units with their respective constitutional responsibilities to execute. The Federal, States and Local Governments which constitute the three tiers of government in Nigeria are each given tax-raising powers. The responsibility of disbursing the fund accrued in the common pool account is the exclusive preserve of the federal government. The disbursement of revenue to the three tiers of government in Nigeria has been a subject of hot debate because of the political nature of the exercise.
BRIEF HISTORICAL BACKGROUND OF REVENUE ALLOCATION IN NIGERIA
Revenue allocation in Nigeria a central theme in governance has a chequered historical antecedent. Many Commissions/Committees have been set-up at different times in the Nigerian national history and they were saddled with the responsibility of examining various fiscal issues and recommend the best principles and formulas in sharing national revenues to meet-up the challenges of the time. Some of these Commissions/Committees include; the Phillipson Commission (1946), the Hicks-Phillipson Commission (1951), the Chicks Commission (1953), the Raisman Commission (1958), the Binns Commission (1964), the Dina Interim Committee (1968), the Aboyade Technical Committee (1977), the Okigbo Commission (1980), the Revenue Mobilization Allocation and Fiscal Commission (1989) and various military decrees (revisions) particularly 1970, 1971, 1992, etc. It is worthy of note that all the Commissions/Committees listed above were adhoc in nature except for the Revenue Mobilization Allocation and Fiscal Commission which was established as a legal and permanent entity to deal with fiscal matters on a more regular basis as the need arises.
THE VARIOUS PRINCIPLES RECOMMENDED BY THE COMMISSIONS/COMMITTEES.
- Basic Needs
- Minimum Material Standards
- Balanced development
- Derivation
- Equality of access to development opportunities,
- Independent revenue/tax effort
- Absorptive capacity
- Fiscal efficiency
- Minimum responsibility of Government
- Population
- Social Development Factor
- Equality of States
- Landmass and Terrain
- Internal revenue generation effort.
These principles have continued to serve as the yardstick for revenue allocation up to this day.
COMPONENTS OF REVENUE ALLOCATION FORMULA
The Vertical and Horizontal Formulae:-
Fundamentally, there are two components of the revenue allocation formula used for the disbursement of the Federation Account as indicated here under.
- Vertical Allocation Formula (VAF)
- Horizontal Allocation Formula (HAF)
i) The Vertical Allocation Formula: This formula shows the percentages allocated to the three tiers of government i.e. federal, states and local governments. This formula is applied vertically to the total volume of disbursable revenue in the Federation Account at a particular point in time. The VAF allows every tier of government to know what is due to it; the Federal Government on one hand and enbloc to 36 States and 774 Local Governments on the other (Kabir Bashir, 2008:3).
ii) The Horizontal Allocation Formula: The formula is applicable to States and Local Governments only. It provides the basis for sharing of the volume of revenue already allocated enbloc to the 36 States and the 774 Local Governments. Through the application of the principles of horizontal allocation formula, the allocation due to each State or Local Government is determined. Thus, it can conveniently be concluded that the vertical allocation formula is for inter-tier sharing between the three tiers of government while the horizontal allocation formula is for intra tier sharing amongst the 36 States and the 774 Local Governments (Kabin Bashir, 2008:3-4).
INSTITUTIONAL FRAMEWORK FOR REVENUE ALLOCATION IN NIGERIA
For analytical purpose, the table below provides at a glance the process which takes place monthly in the allocation of revenue from the Federation Account.
S/NO
Institution
Roles
1.
Revenue Mobilization Allocation and Fiscal Commission
Monitor revenue accruals into and disbursements from the Federation Account. It therefore determines the allocation indices.
2.
Central Bank of Nigeria
Custodian of the Federation Account.
3.
Federation Account Allocation Committee
Monthly disbursements from the Federation Account. Comprises of representatives of the Federal, States Governments, RMAFC, OAGF and revenue agencies etc.
4.
State Joint Local Government Account
Monthly disbursements from the State Joint Local Government Account. Comprises of representatives of the State and Local Governments.
SOURCE: Kabir A. Bashir (2008) Workshop paper.
PROF. ABOYADE COMMISSION (1978)
This was a six-member Committee charged with the responsibility of ensuring that each level of government of the Federation has adequate revenue to enable it discharge its responsibilities with due regard to the principles of:
- Equality of States
- Derivation
- Population
- Even development
- Geographical considerations
- National interest
The Committee however, set aside all the criteria mentioned above and instead formulated Five principles for the determination of statutory allocation to the States. These prevailing principles are as indicated below:
- Equality of access to development opportunities – 0.25
- National minimum standards for National integration – 0.22
- Absorptive capacity. 0.20
- Independent Revenue. 0.18
- Fiscal efficiency 0.15
_____
TOTAL WEIGHT. 1.00
_____
Furthermore, the Aboyade Committee recommended the sharing of the consolidated fund as follows:
Federal Government – 5%
States Government – 30%
Local Government fund – 10%
Special Grants According – 3%
In spite of the fact that a greater proposition of the revenue allocation went to the Federal Government, the Federal Military government still exerted its influence and ensured the further inflation of its grant by 3% to the detriment of the Federating units. Having done this, the report of the Aboyade Technical Committee was presented to the Constituent Assembly for approval.
Unfortunately, the constituent Assembly members couldn’t give the report the serious attention it deserved because of their pre-occupation with controversial issues such as the creation of more states, the Sharia Law Controversy and the formula for election of the President. The next Commission on revenue allocation is the Okigbo Presidential Commission (1980).
OKIGBO PRESIDENTIAL COMMISSION 1980
The Okigbo Presidential Commission on revenue allocation which was constituted in 1980 gave the following recommendations for the sharing of revenue:
Federal Government – 55%
State Government – 35%
Local Government – 10%
Just like other post independence formula on revenue allocation, the Okigho Commission recommendations was not stomach without controversy, disagreement and conflict.
REVENUE ALLOCATION UNDER IBB REGIME 1985 – 1989
The most thorny issue under Babangida regime was the fiscal scheme. The issue of revenue allocation was so thorny that Babangida regime had to review the revenue allocation four times during its duration.
From the inception of the Babangida regime in 1985-1989, the formula stood at:
Federal – 55%
State – 32.5%
Local – 10%
Allocation to the oil mineral production aares, and general acological problems stood at 1.5% and 1% respectively.
SUMMARY OF REVENUE ALLOCATION FROM 1988-1993 (IN BILLIONS)
ALLOCATIONS: 1988 1989 1990 1991 1992 1993
13.92 14.91 22.71 31.86 47.17 58.2
Federal
Government (55%) (55%) (50%) (50%) (50%) (48.5%)
State 8.23 8.807 13.63 19.18 23.58 28.8
Government (32.5%) (32.5%) (30%) (30%) (25%) (24%)
Local 2.53 2.71 6.81 9.59 18.87 24.0
Governments (10%) (10%) (15%) (15%) (20%) (20%)
SOURCE: First Bank: Monthly Business and Economic Reports for 1988, 1989, 1990, 1991, 1992 and 1993.
Notes: Numbers in brackets are the percentages of allocation.
REVENUE ALLOCATION UNDER ABACHA REGIME 1994-1998
Abacha regime adopted and maintained the formula bequeathed to it by the Babangida regime. The formula is thus:
Federal Government – 48.5%
State Government – 24%
Local Government – 20%
Special Fund – 7.5%
According to T.Y. Danjuma, the Federation Account here is made up mainly of the revenue from the following sources:
- Company income Tax
- Import Duties
- Export Duties
- Exercise Duties
- Petroleum profit tax
- Mining Rents and Royalties
- NNPC Earnings from Direct States
- Pipeline Licenses and Fees
- Surpluses arising from the sale of Gas
The introduction of Value added tax (VAT) in 1996 has also diversified sources of Fund for the three tiers of government. The formula adopted for the sharing of the VAT fund (vertically) since the 1997 fiscal year is:
Federal Government – 35%
State Government – 40%
Local Government – 25%
The higher percentage enjoyed by the States in the VAT revenue sharing has been justified by Chief Anthony Ani – Former Finance Minister when he said:
“In order to compensate state governments whose incomes from the PAYE (Tax) are likely to be adversely affected by the enhanced allowances granted tax payers, the VAT distribution formula is further reviewed in favour of States…..”
REVENUE ALLOCATION UNDER PRESIDENT OLUSEGUN OBASANJO (1999-2007)
The proposed formula by Revenue Mobilization Allocation and fiscal Commission gives:
Federal Government – 41.3%
State Government – 31%
Local Government – 16%
Apparently, not satisfied with what it considered a u
[ad_2]
Source by Dr. VICTOR I. LUKPATA