UNDERSTANDING THE REVENUE ALLOCATION FORMULA

 New Nigerian September 5, Daily Champion Sept.6, Daily Trust Sept.7,

Leadership Sept. 7, Sunday Tribune Sept. 10, Daily Sun Sept 12,

Vanguard Sept.15&10, Daily Independent October 4, 2006

It was my last official outing as Head of Public Relations at the Revenue Mobilisation Allocation and Fiscal Commission (RMAFC) when I joined other members of the Commission to the inauguration of a Special Committee on Revenue Allocation constituted by Federal House of Representatives. The inauguration which was held on August 23, 2006 came in the realization that since the 1992 Revenue Allocation Formula, the nation is yet to have constitutionally backed sharing indices for the Federal (FG), States and Local Government Councils (LGCs). The politics of revenue allocation even in the present democratic dispensation has been so contentious that a week after, the Special Committee headed by House Leader, Abdul Ningi had to undertake Public Hearings between August 28 to30, 2006 across the six geopolitical zones. In all the centres there were heated debates and even some threats.

At the inauguration were the Chairman of RMAFC Engr. Hamman Tukur whose Commission is constitutionally mandated to fashion out the revenue formula and the Minister of Federal Capital Territory (FCT), Mal. Nasir Elrufai who was there to present the Federal government’s perspectives on the proposal. There are already some levels of misconception arising from arguments at the inauguration. For instance while the Chairman of RMAFC restated the need for Special Funds to address the need of the constituent units under the custody of Federal Government for joint administration by stakeholders, there have been misinterpretations on this aspect in some sections of the media.

The Minister of FCT too made a very strong representation on behalf of FG where he said it is needless the argument for the creation of ‘parallel bodies on fiscal issue.’ This was in reference to calls for the separation of Office of the Accountant General of Federation from that of the Accountant General of the Federal Government for impartiality in administering funds in the federation account. He pointed out that it is a crazy idea the attempts to make distinction between Federation from Federal Government. The argument may not likely go down well with keen watchers of Nigeria’s political economy. There is no doubt that the President of Federal Republic of Nigeria is not only presiding over the affairs of federal government as a tier, but also of the federation which include other tiers. The Constitution however clearly stipulates items in its Concurrent and Exclusive Lists which limit the level of interference of federal government in the affairs of other tiers. For instance while the constitution doesn’t assign roles for the Ministers and Commissioners, the appointed public officers have their powers delegated to them by their respective heads of governments. Similarly one may cite the attempt by El-Rufai’s FCT to establish its own Revenue Board against the existence of Federal Inland Revenue Service; and his preference for FCT to be treated as if it were a state as against governors’ resistance to that in the present proposed revenue formula.  While some of the arguments may be logical, there is a need for independent institutions like constitutional bodies to be neutral in the politics of the tiers.

With the interest shown by National Assembly and other Nigerians on the Revenue Allocation Formula lately, it may be necessary to highlight its historical perspectives at least from the one formulated in 1992 which was bequeathed to democratic government in 1999. The 1992 recommendation which was used till the advent of democracy in 1999 has the following features: FG 48.5%, State 24%, LGCs 20% and Special fund 7.5% (which was distributed: FCT 1%, Ecology 2%, Stabilisation 1.5% and Natural Resources 3%). The first proposal in the Regime of President Olusegun Obasanjo which was submitted to National Assembly from RMAFC had this proposal: FG 41.3%, States 31%, LGCs 16% and Special Funds 11.7% (i.e. FCT 1.2%, Ecology 1%, Natural Resources 1%, Agriculture and Solid Mineral Development 1.5% and Basic Education 7%). Before the National Assembly could debate on that proposal, there was a Supreme Court verdict in April 2002 on the Resources Control Suit which nullified provision of Special Funds in any given Revenue Allocation formula.

With that new development, the formula in operation then (from 1992), had to give way as President Olusegun Obasanjo invoked an Executive Order in May 2002 to redistribute the formula to reflect the verdict. That Executive order, which is acceptable by law, gave FG 56%, States 24% and LGCs 20%. But when there was an outcry from other tiers against that distribution, the President reviewed the Executive Order in July 2002 with some adjustments by fraction where the FG had 54.68%, States 24.72% and LGCs 20.60%. In March 2004, the then Minister of Finance, Dr. Okonjo Iweala issued a letter modifying the second Executive Order  that increases state allocation to 26.72% and reduces FG to 52.68%. That ministerial circular on the modification has since been the indices for the monthly distributions from the Federation Account.

Between those periods the RMAFC resubmitted another proposal on Revenue Formula where it proposed: FG 46.63%, States 33% and LGCs 20.37%. But for very mysterious reason there was an allegation of circulation of fake bills in the National Assembly. This singular allegation influenced the withdrawal of the formula until September 2004 that another proposal from RMAFC was submitted to the President.  That proposal now with National Assembly recommends for FG 53.69%, States 31.10% and LGCs 15.21%. But in the actual fact there is 6.5% built into the allocation of FG to cater for Special Funds thereby leaving the FG with 47.19% as its rightful due. The spirit behind lumping the funds into FG’s, is to guard against the repeat of constitutional errors which the Supreme Court voided in its ruling of April 2002. The 6.5% would be applied as follows: Ecological Fund1.50%, Solid Mineral Fund 1.75%, National Reserve Fund 1.50% and Agricultural Development Fund 1.75%.

From the above historical perspective, one can observe the needless delay, politicking and controversies that trailed this constitutional requirement for statutory allocation from Federation Account to tiers of government. The area that has been greatly misconstrued lately is the alleged adjustment of vertical allocation which does not affect the horizontal formula as it is being insinuated. The horizontal allocation indices are for sharing amongst states and LGCs which include such proxies as Equality, Population, Internal Revenue, Landmass, Rural Road , Inland Water Way , Education, Health and potable water. The vertical allocation to federal, states and local government councils is not changed.

Though new problems may arise from the ongoing debate and consultations amongst the stakeholders seeking for upward review, it is better the formula is passed now than delay for another lengthy time. The positive features in the new proposal include direct allocation of derivation funds to oil producing communities where their traditional rulers and youth leaders would be involved in the management; the transfer of funding of primary schools education to states from the burden of LGCs; the treatment of FCT, as if it were a state, to benefit from the Federation Account;  and the incorporation of Special Funds into the Federal Government allocation for the purpose of joint management by all the tiers to address crucial and essential needs of the Federal Republic as an indivisible entity.

Now is the period for the present administration to make history by ensuring the bill received the accelerated passage as we look towards a new administration in 2007. Since the last members of the National Assembly (1999-2003) failed to make anything out of this very sensitive national issue during their tenure, the present legislators should not repeat the same mistake. Consequently, the federal Government and State Governors must ensure they rewrite history by giving the present process of fashioning new revenue formula, a moral backing before they leave office.

Please Click on this link to view a table on the formula from 1992-Date:

http://www.yashuaib.com/revenuetable2.htm