7.3. Revenue Allocation
7.3.2 Constitution and Revenue Allocation
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from deliberation. We must come together, our hands on the table, face up and agree as to what we need to address as a nation. Then we can move forward and begin to talk about national integration (PINCP, January 2019).
This assertion attests to the fact that past conferences need to be revisited (utilise some of the recommendations and agree on new things). To achieve this, all stakeholders need to convene a SNC and be sincere on how to bolster integration in Nigeria.
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Nigerian federal system. However, since the first military coup in 1966, the permutation has been so skewed in favour of the centre. Tables 5 and 6 show the revenue and expenditure responsibilities of the central, states and local governments during the Fourth Republic.
Table 5: Expenditure Responsibilities of the Three Tiers of Government in Nigeria Federal Government State Government Local Government Defence
Foreign affairs
Currency and insurance matters
Citizenship Customs Immigration Police and prisons Mines and minerals Aviation
Shipping and interstate water resources
Post and
telecommunications Railways*
Federal roads Nuclear energy
Commercial and industrial Monopolies, patents and, trade marks
Minimum national education standard at all levels
Education Health State roads Agriculture Water supply Social welfare Housing
Primary education Markets
Cemeteries Sewage, public
conveniences, and refuse disposal
Local Roads
Homes for the destitute and infirm
Establishment and maintenance of slaughter houses
Compiled by author from Federal Government of Nigeria (1999) and Suberu (2003)
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*There is a bill in the National Assembly to move it to the concurrent list where the states and federal will be able to operate rail transport.
Table 6: Revenue Responsibilities of the Three Tiers of Government in Nigeria Federal Government State Government Local Government Company income (and
accompanying) tax Personal income tax* for personnel of the armed forces, police, staff of the ministry of foreign affairs and residents of the FCT.
Petroleum and gas profit tax Mining rents and royalties Value Added Tax (VAT) Capital gains tax and stamp duties on corporate entities Import, export, and excise duties
Personal income tax (regulated by national legislation)
Capital gains tax and stamp duties on corporate entities (regulated by national legislation)
Road or vehicle licenses fees
Business registration fees Land tax
Tenement rates for property Shop, kiosk, and motor park fees
Radio, television, bicycle, cart, and domestic animals’
licences
Naming of roads and streets and numbering of houses Marriage, birth, and death registration fees
Cattle tax
Signboard/billboard advertisement fees
Compiled by author from Federal Government of Nigeria (1999) and Suberu (2003)
*Please note that this is not paid into the federation account. It is solely taken by the federal government and not shared with the states and local governments.
Tables 5 and 6 show that the federal government is more fiscally buoyant than the other tiers of government. Ideally, revenue allocation entails allocating actual or prospective revenue to the levels of government so that each of them can have the financial wherewithal to perform its assigned functions (Abubakar, 2005: 3). However, in the case of Nigeria, states and local governments in the country mostly depend on federal allocation to survive.
The 1999 Constitution provides for the functions of the three tiers of government. The exclusive list is meant for the federal, concurrent is shared by both, and some functions are
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solely state and local government affairs. The 1999 Constitution stipulates that the exclusive list consists of 68 items while the concurrent list is made up of 30 items. As a result of over- reliance on oil, more revenue comes to the federal government compared to other tiers of government. Although the example of Zamfara state controlling its gold is not in line with the provisions of the Constitution.
Aside from the oil factor, most of the functions of the government at the centre have good revenue opportunities attached to them. The same is not the story regarding state and local governments. Some taxation responsibilities that fall under the concurrent list are designed such that except the National Assembly authorises a state, they cannot utilise such avenue to generate profit. Most of the matters that fall under the concurrent list like agriculture, education, health, some road construction, among others, require a lot of expenditure with less income considering the over-reliance on oil. These duties are designed in such a way that if there is a clash of responsibility, the law of the federal prevails. Although the states are solely responsible for chieftaincy affairs, this generates no/insignificant income for the states.
Regarding local governments, the same constitution spells out their functions. These include assisting the state it falls under its jurisdiction in economic development, collection of rates, issuing of television and radio licences, establishing and maintaining cemeteries and homes of destitute, licensing bicycles, canoes, wheelbarrows, and carts, naming of streets, among others. Most of these functions are still subject to approval by the State Houses of Assembly.
These responsibilities attract less revenue, and they exclude resources that could fetch revenue to effectively carry out their responsibilities.
Concurring with the assertions above Suberu (2003: 11) submits that most federal systems assign the most lucrative revenue-generating functions to the central government under the guise of macroeconomic management, modification, or development. The unevenness of the federal being ‘favoured’ in the revenue game has bred discontent, especially from the oil producing states. They want to control the resources. They feel other parts of the country are being developed using resources extracted from their territory while their communities are not developed and face a lot of environmental challenges due to oil production. These support the postulation of relative deprivation theory. PISWP 2 echoed this thus, ‘but from my point of view, the South South based on the oil and the level of development in the South South has been marginalised’ (PISWP 2, December 2018).
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These factors were responsible for militancy in the Niger Delta and the vices attached to it.
It is also an abuse of true federalism. An interviewee expatiated on this below.
You mentioned the issue of sharing of revenue. That is talking of resource control. If you share what belongs to the whole country, is it not also important to look at?
Federating unit is a crucial point in our political system because you share what you have, but it appears we are sharing what belongs to others. If you must aggregate all the resources of the country into one pool and share it, without taking cognisance of the ratio of contribution to that pool, then the question of equity and justice will come to play, and that is the bedrock of our political upheaval. So, when you talk of true federalism, you cannot have a resource without generating that resource. If you are federating the revenue, you also must federate the generation of that revenue, so that is where you have a discordance (PICL 2, December 2018).
A revenue allocation formula that gives more attention to revenue sharing than revenue generation is a setback to economic development, and this breeds ethnic rivalry and makes the government less efficient (Report of the 1994/95 Constitutional Conference: 139). Nigeria earlier experienced a situation where subnational units could generate revenues to match their expenditures. However, this is not the case presently because most states cannot survive without federal allocation. In both dispensations, revenue transited between the tiers of government, and these were fabricated through the vertical and horizontal revenue allocation formulas. The vertical and horizontal criteria have been subjects of manipulation. The military altered the revenue sharing formula without going through the parliament but only
‘scrutinised’ through the Armed Forces Ruling Council or Provisional Ruling Council (Elaigwu, 2002: 86). Although they set up committees and decrees to put in place formulas, these did not result in healthy fiscal federalism. The military rule from 1966 to 1979 saw the federal government shrinking the fund it hitherto transferred to the component units which included offshore mining rents and royalties, export and import duties on tobacco and motor fuel (Suberu, 2003: 15). It also punctured the financial viability of the states by centralising the agriculture marketing boards, abolishing taxes and duties on domestic agricultural produce, restricting, or abolishing the powers of the states to levy petroleum sales as well as betting and gaming taxes (Suberu, 2003: 15). The situation was similar in the military rule from 1983 to 1999.
All these affected the Nigerian federal system negatively. The states became financially weak and could hardly carry out developmental projects. A major challenge of fiscal federalism in Nigeria is the disparity between expenditure functions and revenue-raising capacities of
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component units (Akujuru, 2015: 24). Similarly, Usman (2014a: 384) posits that there is financial subordination in the absence of resource control, which is anathema to true federalism because each level does not have the financial capacity to garner resources for its developmental purpose. It was assumed that these flaws were because of not having a body that manages revenue allocation in the country. Consequently, a constitutionally backed statutory body was set up.
The National Revenue Mobilisation Allocation and Fiscal Commission (NRMAFC) was established by Decree No. 49 of 1989 and later modified by Decree 98 of 1993 (now RMAFC Act CAP R7 LFN 2004) (RMAFC Website9). Hence, its name has changed to Revenue Mobilisation Allocation and Fiscal Commission (RMAFC). It cooperates with other statutory bodies and government agencies to discharge its functions. Its functions are to monitor the additions to and distribution of revenue from the Federation Account, regularly review the revenue allocation formulas and principles in operation to ensure conformity with changing conditions, advise the Federal and State Governments on best fiscal practices that can emanate into an increase in their revenue, among others.
The RMAFC has been a major stakeholder in revenue allocation in the Fourth Republic.
Revenue allocation in the Fourth Republic is shared using horizontal and vertical formulas.
This brings to the fore the need to have a historical look at the different vertical and horizontal revenue allocation formulas from 1946 to date. This will illuminate how the pendulum swung in favour of the states till 1966 and how it has always been a federal-dominated game since the military takeover of 1966. The analysis and claims made in this section will be explained further through the tables in the section below.