The issue of revenue allocation or fiscal sharing has been very turbulent, recurring corruption and mismanagement are highly political and provocative in Nigeria. The scramble for funds is worse and more competitive in Nigeria, which is a federal state of many sub-units. This paper has focused on Nigeria’s struggle, unity, oneness and togetherness as a federation.

Introduction

Revenue or fiscal allocation is the sharing of the national cake among the various parts or units. Revenue sharing is more compounded in a federal state than in a unitary one as the former has more levels or tiers of government and greater ministries and departments to cater to than the latter.

Nigeria is a federal system with various ethnic groups, thirty-six sub-units called states, excluding the Federal Capital Territory, and multiple ministries, departments, and parastatals that have to weigh and balance their revenue methods among these competing components.

Thus, fiscal allocation has become a constant socio-economic and political issue in Nigeria. Various commissions of inquiry had been set up. These commissions were to look into this perennial problem of revenue allocation and make recommendations.

The objective of this paper is to analytically examine the various criteria of revenue allocation and suggest more acceptable methods to ensure equitable sharing. This will minimise conflict and ensure the stability and security of Nigeria’s federalism.

Historical Survey of Revenue Allocation in Nigeria

Closely followed by Richard’s Constitution of 1947 was Sydney Philipson’s Commission on Revenue Allocation 1947. The commission emphasised the principle of derivation. It was a short-lived recommendation as a result of criticism from the Nigerian nationalists (Olatunji & Adetokun in 1992).

J.R. Hicks-Philipson’s Commission (1952) also recommended the principles of derivation and even development as his two best criteria.

Sir Louis-Chick’s Commission of 1954 also laid more emphasis on the derivation principle. It also increased regional autonomy and weakened the central power. Nationalist leaders were still unsatisfied.

The Seremy Raisman Commission (1957) came out with a revenue allocation formula that was ideal for a federal state, which could bring about economic and national integration. His recommendations were more satisfactory to most nationalist leaders, hence they lasted for a fairly long period (1957-1965).

The first post-independence commission to review revenue allocation was the Binns Commission of 1964. It was set up to correct the shortcomings of the former commission. The principle of derivation was heavily criticised as unfair and unsatisfactory.

The Diana Commission (July 1968)

Is the first truly indigenous revenue allocation committee set up under the military? The recommendation was that greater revenue should be transferred from the State to the Federal government. Even though the commission’s other reports were rejected in theory on the basis that it exceeded its power and ignored its terms of reference, the basic theme was implemented in practice.

Ojetunde Aboyade’s Commission (1977) suggested 57% of the country’s allocation to the federal, 30% to the state, 10% to local governments and 3% to special accounts. On the sharing among the states, it recommended five new principles to which it assigned weights, viz.:

Equality of access to development opportunities
National minimum standards for national integration
Absorptive capacity
Independent revenue and maximum tax efforts, and
Fiscal efficiency

Rumination

These principles were to indirectly replace the principles of population, derivation, need, and even the main criteria used in the past.

Pius Okigbo’s Commission of 1979 was set up to provide formulae for sharing the development and equality of States. It is recommended that the Federal Government should or formulae:

The minimum responsibility of the government is 40%

Population 40%

Social Development Factor 15%

Internal Revenue Efforts 5%

The government accepted these recommendations with modifications. On the whole, the formulae for revenue allocation and the percentage of sharing heather been constant or consistent. This shows the controversial nature of the issue. So far principles used could be summarised thus:

Principle of Derivation/Compensation
Principle of Even Development
Principle of Need based on Population
Principle of Independent Revenue
Principle of National Interest
Principle of Equality of States
Principle of Minimum Responsibility
Principle of Equality of Access to Development Opportunities

The Controversy

The politics behind this issue is that states advocate for the principles or formulae that will favour them most and put them at a greater advantage over other states. They then lobbied the region of Western Nigeria to support the Principle of Derivation and used this to also support the Principle of Derivation and Compensation. This is essentially the claim of the Ogboni people that the Federal Government should not. The argument here is that such areas that produce the wealth of the nation should not be

Rumination

On the other hand, their critics argue that oil is a natural gift and an act of God. That they are not endowed. Furthermore, the large populous states favour the principles of need, and the newly created states and the ‘disadvantaged’ states support the Principle compared to other old states. These states also favour the Principle of Social Development factor as prescribed by the Okigbo Commission.

These arguments for and against these principles are reasonable, more so in a competitive state like Nigeria. The best solution is a constant review of these formulas entrenched in the 1999 Constitution and a reasonable balance, i.e. a harmonious mixture of those principles.

Omolade (2000) has identified three major patterns of revenue sharing in Nigeria. First and most pronounced is the allocation between the tiers of government, namely, Federal, State and Local. The Federal believes that, as a big brother, the greater percentage should accrue to her. This is to enable her to perform her exclusive legislative responsibilities entrenched in the 1999 Constitution.

The States, on the other hand, believe that all 36 will share whatever percentage is allocated to them and then advocate for a large percentage to go around them. Allocation among states is also very competitive and a problem. The Local Government, on the other hand, alleged that they are the nearest to the people and need more funds to fulfil their responsibilities so that people will feel cheated.

Rumination

The second pattern is sectoral allocation. This is among the various sectors, e.g. Federal and State sectoral allocation, and these are reflected in their yearly budgets. Money is shared among these departments. For example, in Education, we have funds allocated accordingly to these levels. In non-formal education, there is adult education and other campaigns against illiteracy.

In addition, the budgetary provision will specify funds for capital and recurrent expenditure among the federating units of Nigeria, and not on sectoral and departmental allocations.

Current Trend

The current trend is that everybody becomes ‘Oliver Twist’, wanting more. The states are crying about inadequate funding. They accused the Federal Government of subjugating. Local governments complain of zero allocation. The sectoral education, particularly higher education, is being starved. Roads are bad, electricity is erratic, pumps dry up, etc. The oil-producing states particularly the Niger Delta areas sponsored the Onshore-Offshore Dichotomy Bill. But are they contented? The current (June 2004) gross revenue allocation among the three tiers of government is (Guardian, June 10th2004, p.11)

Federal 48.5%

States 24%

Local 20%

Special Fund 7.5%

Total 100%

The breakdown of the special fund is as follows:

ers=1.0% Federal Commissioners=1.0%

Derivation 1.0%

Mineral =3.0%

Generals = 2.0%

Statistics Stabilisation=on =0.5%

Total 7.5%

Currently, too, state allocations are given by the Federal Government, and the published allocation of some states that illegally created additional local governments apart from the existing ones in the 1999 Constitution is also being withheld.

The argument is that there is no true federalism in Nigeria. Sagay(2004) contends that the centre is too powerful and unreasonably in control of the resources of the federal tier units, whose servant it is supposed to be. This situation may bring threats of secession or minority uprisings, which may lead to national insecurity.

Conclusion and Recommendation

Nigeria needs to redefine its federalism. A new and expanded agreement in the form of a new constitution needs to be bargained for. A new relationship has to be forged as it relates to fiscal sharing and leadership succession. These are the two basic threats to Nigerian federal (Awa, 1976).

It is argued that the present National Assembly and other political leaders have no role in the confab that established the present 1999 Constitution. They are just operators of the existing Constitution and not creators. This reiterates the persistent demand for a conference because we cannot but sit down and discuss. We need to negotiate togetherness.

The Revenue Mobilisation Allocation and Fiscal Commission is established by the Federal Government. To perform its constitutional role of advising the President on matters as provided in Section 162 (2) of the 1999 Constitution cannot but be prejudiced as who pays the piper dictates the tune.

It is also anticipated that government functionaries at all levels should be more honest in the spending of public money. In the words of Adebayo (1995), responsibility and accountability should be the watchword of any democratic government.

Conclusion

Nigeria is too blessed to be poor. The effluent should sacrifice a little to ensure the survival of others. A reason and harmonious balance must be reached. Given the above, it may be suggested that the federal share of the national budget could be downwardly revised in favour of the other two levels.

Perhaps,30% should be to the Federal, 30% to the (thirty-six) states and 30% to the (seven hundred and seventy local government councils, while the remaining 10% is reserved for Special and Consul Funds. This Special Fund should adequately cater for the areas that produce the wealth. This parity distribution will augur well for true federalism based on equity, fair justice and participation. You can read similar posts on our news page of the site.