The states should as a matter of urgency press for a new revenue allocation formula, writes Eric Teniola

There is a hardly a day that goes by now, that we don’t read in the media of billions of naira being stolen by an agency in the central government. The whole thing is sickening. The rate at which money is being stolen in the central government has become like a curse. It is as if there is a competition among top government officials on the amount you could steal. The main reason is that there is too much money in the centre and there is lack of coordination. Someone even suggested that we don’t have any leader in the centre. In an ideal situation it should not be tolerated. I think the time is ripe now to ask how come the central government has so much money while the states and the local governments are on financial ventilator. The last time we examined the formula for revenue allocation was in 1980. And the report was never implemented till today. The military came in 1984 and bungled everything. The present revenue allocation formula favours the centre because it was produced by the military. And as we are aware the military prefers a central command structure.

In spite of the extravagant life style of governors judging by the number of the expensive Lexus and Toyota CVR cars in their convoys, the states are dying for lack of funds. Notwithstanding the Local Government Reform Committee set-up on June 17, 2003 and headed by Etsu Nupe, Alhaji Umaru Sanda Ndayako as the Chairman with Alhaji Liman Chiroma (North East), Barrister John Ochoga (North Central), Professor Godwin Odenigwe (South East), Mr. Augustine Udoh-Ekong (South South), Professor Akin Mabogunje (South West), Senator Tunde Ogbeha (Senate), Hon. Austin Okpara (House of Representatives), Mrs Abieyuwa Garba (representing Women), Mr. Venatius Ikem (Youth) and Alhaji I.B. Sali as the Secretary of the committee, the local government system today in Nigeria is more or less dead.

Yet the centre keeps on spending money like drunk sailors. The rural areas have been abandoned and neglected. The other day the Vice President, Yemi Osinbajo, cried out that the cost of governance has become too expensive. To me that is understatement. The cost of running government in Nigeria is killing Nigeria. And a docile society like ours tolerate it. It looks as if we have surrendered. We should ask ourselves why the central government has become so mighty. The major reason is the issue of revenue allocation.

In 1980, President Shehu Shagari attempted to address the issue of revenue allocation. On November 21, 1979, he set up the Presidential Commission on revenue allocation. The Commission was headed by Chief Pius Okigbo. Other members of the commission were Uman Bello, Garrick B. Leton, Ahmed Talib, Balarabe Ismaila, Adedotun O. Phillips and W. Okeife Uzoaga. Mr Ambrose Feese of the New Nigeria Development Company Limited in Kaduna was the Secretary. Messrs C.C. Chukwurah, I.O. Dada, F.D.O. Enwefah, A.O. Gaber and Tunji Olutola from the Federal Public Service and Mrs M.N. David –Osuagwu from the Public Service of Anambra State formed part of the secretariat of the commission. The commission toured the then 19 states of the federation and later submitted its reports to President Shagari on June 30, 1980. One hundred and thirteen individuals submitted memoranda to the commission while 48 associations, institutions and professional bodies equally submitted memoranda to the commission. Among those who submitted memoranda were Chief Simeon Adebo, Governor Aper Aku of Benue State, Professor Sam Aluko, Mr. Akin Fadahunsi, Chief D.E. Okumagba, Senator Kunle Oyero, Dr. Ibrahim Tahir, Dr. A.B. Yusuf, Mr. R.O. Nwabueze, Mr. Fola Omidiji, Dr. E.J. Nwosu, Mr. Bisi Morafa, Dr. Dele Olowu, Chief N.A. Frank Opigo, Chief E.E. Jacob Duke, Chief A.A. Ani, Chief E.K. Clark, Mr. B. Briggs, Chief S.O. Asabia, Mr. Victor Salami, Mr. M. Prest, etc. All the 19 states then submitted their memoranda to the commission.

But let us look at the various revenue commissions that we have had till date.

“In political as well as fiscal terms, Nigeria operated a unitary form of government between 1914 and 1946. There was therefore no need for any system of revenue sharing. The impending constitutional change to be introduced in 1946 by the Richards Constitution created the need to formulate proposals to enable the newly created regions, North, West, and East, to carry their new responsibilities. The new constitution gave to the regions some measure of autonomy – administrative authority and responsibility, but left the supreme fiscal powers squarely with the central government. It was therefore necessary to make available to the regions revenues to enable them to undertake their new functions. The Phillipson Commission was to formulate the administrative and financial procedures to be adopted under the constitution.

The commission divided regional revenues into two classes: “declared” and “non declared” revenues. “Declared” revenues were those locally collected by the regional authorities: direct taxes (personal income), licences, fees, income from property, mining rents, etc. These formed the core of what were later restyled independent revenues. “Non-declared” revenues were those collected by the central government. Since Nigeria operated a unitary government, it was the central government that determined what portion of the “non-declared” revenues were to be shared each year among the regions. In the event, during the four years of the Phillipson scheme (1948-1952), the proportion of centrally collected revenues shared among the regions remained under one fifth.

For the share of the regions out of the non-declared revenues, Phillipson considered three principles: derivation, even progress and population. Since population could be used as a proxy for need and even progress, and the statistical basis for using this principle did not exist in 1946, Phillipson applied only the principle of derivation. His argument that in using it he aimed at inculcating “financial responsibility” into the regions, was mere rhetoric: all the taxes that entered into the argument were outside the legal and administrative jurisdiction of the regions. But Phillipson also attempted to ensure that the shares of the regions reflected the need to maintain existing levels of regional expenditures as well as provide for “reasonable and unavoidable expansion.” Officials were blamed subsequently for making assumption on the entitlement of the region on the basis of derivation, since the statistics of regional consumption of certain commodities were grossly deficient. Second, controversy, developed as to who was being developed at the expense of the other: the relative contribution of the regions to the total revenues (declared and non-declared) and the relative receipts from the centre diverged widely. The application of the principle of even progress with population as the proxy would have redressed the balance by giving the North more the 36 per cent it got against the West with 26 per cent, or the East with 38 per cent. The dissatisfaction with the Phillipson scheme and changes envisaged by the 1951 MacPherson Constitution which introduced a quasi-federal structure of government led to the appointment in 1950 of Professor John Hicks (1904-1989), a British Economist and Sir Sydney Phillipson (1892-1966), a British Knight and finance administrator to develop a scheme that “over a trend of five years” would achieve a “progressively, more equitable division of revenue.” By recommending that the regions should have the power to raise, regulate and appropriate to themselves certain items of revenue, Hicks and Phillipson laid the foundation for the principle of independent revenues whose seeds were already in Phillipson’s category of “declared” revenues. Since, however, these revenues could not meet the needs of the regions, some centrally-collected revenues would have to be shared between them. Accordingly, the commission proposed the principles of derivation, need, and national interest. It gave 50 per cent of the import and excise duty on tobacco and 100 per cent of the duty on motor fuel back to the regions on the basis of derivation established by reference to the relative consumption in the region. It gave capitation grants to the regions on the basis of need established by reference to population. But since at the time when the commission was doing its work, the last census was in 1931 and the next census was two-three years away (1953). The population factor was determined by reference to the male adult tax payers in each region. Indeed, the 1953 population was, in many places, grossed up from the nominal tax rolls. The commission gave special grants to the regions on the basis of national interest: 100 per cent of the cost of the regional police force; 50 per cent of the cost of Native Authority police force; and 100 per cent of the grants given for education by the regional government to the voluntary agencies and local authorities. The commission’s report had one outstanding feature. A single factor was used for strict and direct revenue allocation a two-factor formula, of need and national interest was used for grants. This took care of principles that could not readily, for statistical and other reasons, be accommodated in the formula for direct allocation. The attempt to look beyond allocation of revenues to cover merely recurrent expenditures was ahead of its time for the then Nigerian government. The commission’s recommendation on a uniform tax system and on the need for a loans commission for the administration of loans to the regions and the centre were rejected by the government. Agitation soon built up from the West to push the principle of derivation to the limit by applying it to all items of federally collected revenues. The North pressed for the deepening of the application of the principle of need while the East pressed for the extension of the principle of national interest.

Teniola, a former Director at the Presidency, wrote from Lagos