ISSUES IN THE REVENUE SHARING FORMULA
There is need to devolve more financial resources to the states and local governments
When in 2021, then President Muhammadu Buhari received the report of the review of the vertical revenue allocation formula from the Revenue Mobilisation Allocation and Fiscal Commission (RMAFC), we didn’t believe the recommendations went far enough. At that time, the commission proposed a sharing formula of 45.17 per cent for the federal government, 29.79 per cent for the 36 states and 21.04 per cent for the 774 local government areas. Now that the RMAFC has commenced a fresh review of the revenue allocation formula for the three tiers of government, it is important that their recommendations be more reflective of our federal structure and the challenges at hand.
The revenue allocation formula is the proportion of resources accruing to the federation that goes to each of the constituent units. It also defines the slice of the resources retained in the territories where they are generated as well as the proportions of the revenue accruing to the collecting agencies of government. “The commission has resolved to initiate the process of reviewing the revenue allocation formula to reflect emerging socio-economic realities,” the RMAFC chairman, Mohammed Shehu, said last week. “The aim of this review is to produce a fair, just, and equitable revenue-sharing formula….”
It is indeed unfortunate that despite more than 26 years of democratic rule, the country’s revenue allocation formula is still stuck in the past. Established in 1989, the RMAFC came up with the current revenue formula in 1992 during the military era of General Ibrahim Babangida. Under the prevailing formula, the federal government appropriates 52.68 per cent, the 36 states take 26.72 per cent while the 774 local government areas in the country share 20.60 per cent every month. We have always argued that it makes little sense that the federal government has more than a fair share of the resources of the country to the detriment of other units that are closer to the people with plenty of needs and responsibilities. Besides, the horizontal distribution of resources among the states encourages outright laziness.
By virtue of the 1999 Constitution as amended, the RMAFC is empowered to review the revenue allocation formula from time to time to reflect changing realities. But attempts to tinker with the sharing arrangement have always been thwarted by the federal government, perhaps for fear of losing its hefty share of the ‘national cake’. Even though a report was presented to him in 2013, President Goodluck Jonathan could not present the draft revenue formula to the National Assembly before his tenure lapsed two years later. The same game was played by President Buhari who said his decision on the matter would rest on “the outcome of the constitutional review process, especially as some of the proposed amendments would have a bearing on the recommendations contained herein.” The 2021 report, which devolved some critical responsibilities from the Exclusive to the Concurrent Legislative List, was eventually abandoned.
We therefore hope that the RMAFC is not embarking on another fruitless journey. Across the country today, the consensus is that there is urgent need to devolve more financial resources from the centre to the states and local governments. But while we endorse the clamour for a more equitable sharing formula, we nonetheless believe that we are not generating enough for our size and need as a country.
With a fixation on ‘sharing the national cake,’ mostly oil rent, the revenue allocation formula has always been a contentious issue. Perceived lack of fairness on resource allocation often accounts for tension in the polity. Yet, the most important challenge in Nigeria today is not how revenue is shared but the revenue itself. Nigeria’s revenue as a percentage of the Gross Domestic Product (GDP) is considered one of the lowest in the world. It was approximately 8.5 per cent in 2023 while the African average is 16 per cent.
It is more productive to concentrate efforts on how to improve revenue generation across the board than the fixation on sharing. We have a huge revenue problem. And we must begin to fix that too.
