BEYOND REVENUE ALLOCATION FORMULA

The proposed sharing formula falls short of expectation 

Report of the review of the vertical revenue allocation formula was recently received by President Muhammadu Buhari from the Revenue Mobilisation, Allocation and Fiscal Commission (RMAFC). It proposes a sharing formula of 45.17 per cent for the federal government, 29.79 per cent for state governments and 21.04 per cent for the local governments. While the recommendation is an improvement on the current formula, we do not believe that it is good enough. The federal government should shed further load, and receive much less.  

 However, the most important issue with Nigeria is not how revenue is shared but the revenue itself. Nigeria’s revenue to Gross Domestic Product (GDP) is about 8% while the average for Africa is 18%. It is therefore 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.  

 The revenue allocation formula is the proportion of resources accruing to the federation that goes to each of the components of the nation. 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 perceived lack of justice and fairness in the distribution of the resources often accounts for tension and controversies in the polity. But with a fixation on ‘sharing the national cake,’ mostly oil rent, the revenue allocation formula has always been a contentious issue.  Meanwhile, 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.  

Established in 1989, the RMAFC came up with the current revenue formula in 1992 during the military era of General Ibrahim Babangida. Attempts to tinker with the sharing arrangement in 2013 were thwarted by the federal government perhaps for fear of losing its hefty share of the national cake. President Goodluck Jonathan could not present the newly drafted revenue formula to the National Assembly before his tenure lapsed. ‘‘Ordinarily, I would have gone ahead to table this report before the National Assembly as a Bill for enactment,” President Buhari told the RMAFC team led by chairman, Elias Mban. ‘‘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 outcome of the constitutional review process, especially as some of the proposed amendments would have a bearing on the recommendations contained herein.” 

 It is indeed unfortunate that despite more than two decades of democratic rule, the country’s revenue allocation formula is still stuck in the past. It is little wonder 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. Under the prevailing formula, the federal government gets 52.68 per cent, the 36 states share 26.72 per cent while the 774 local government areas in the country share 20.60 per cent every month. Besides, the horizontal distribution of the resources among the states encourages outright laziness.    

Across the country today, the consensus is thatthere is urgent need to devolve more financial resources from the centre to the 36 states and 774 local governments. This is towards ensuring that these tiers of government can carry out their functions and ultimately improve the economic growth and development in the country. While we endorse that clamour, we nonetheless believe that we are not generating enough for our size and needs as a country.