7.3. Revenue Allocation
7.3.4 Horizontal Revenue Allocation
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*The current vertical formula is on the net federation account revenue distributable. That is after necessary deductions like 13% derivation and other charges and costs and excluding VAT (National Bureau of Statistics, 2020).
** This is broken down as general ecological problem-1%, FCT-1%, natural resources development- 1.68%, statutory stabilisation- 0.5% while the balance of 48.5% goes to the federal government. Aside from the federation account revenue distributable revenue, VAT also has a different sharing ratio which is federal- 15%, states- 50%, and local governments- 35% (National Bureau of Statistics, 2020: 82).
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this criterion is that census figures have always been contested. Available literature indicates that the 1950s and post-colonial census favoured the North (Iwara, 2010: 530; Suberu, 1993:
44). The 1991 population census was a little over 88.5 million with the North having 47,261,962 while the South had 41,242,512 (Abubakar, 2005: 33). The advantage of this criterion is that, if the census figure closely mirrors the reality, then different levels of government will be provided proportionate resources for their needs.
Landmass implies that the larger the space occupied by a state, the more it receives from the federation account based on this criterion. The North is larger than the rest of the country in size. This is contrary to Wheare’s prescription that in a federal state the units that make up the country must be ‘roughly equal in size, population, political power, administrative skills, economic development or relative geographical location’ (Wheare, 1963 cited in Abubakar, 2005: 28). The size of the North was an issue of contestation in the First Republic as the North, because of its size, rivalled the central government (Suberu, 2019: 5). Given that the South is more economically developed than the North, this situation bred deprivation sentiments in the South (Suberu, 2019: 5-6). There is the feeling that the South is the goose that lays the golden egg for the large North.
Social development used to be mainly based on primary school enrolment. However, other factors have been added. These are secondary school enrolment, number of beds in state hospitals, water supply and average rainfall (Salami, 2011: 47). Social Development is about how to make the existing infrastructures meet the social needs. The advantage of this criterion is that states and local governments are encouraged to increase primary and secondary enrolment and to improve health and water supply. The weakness of this criterion is that the fund from federal allocation meant for this may not meet the infrastructural gap, and states may not be willing to raise enough revenue to do this.
The criterion of internal revenue means that states that generate more revenue receive more from the federation account based on this yardstick. The advantage that comes with this is that states will be encouraged to explore relevant revenue generating avenues to boost their internal revenue generation and get more from the federation account. The disadvantage is that some states are well positioned to generate more revenue than others due to population, the existence of sea ports, among others.
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Aside from the four explained above, the derivation principle is also a very important horizontal yardstick. Derivation is 13% paid to the oil producing states (Bayelsa, Delta, Edo, Rivers, Cross Rivers10, Abia, Imo, Akwa Ibom, and Ondo) from the proceeds from onshore oil production (Salami, 2011: 21). It is also paid to states whose natural resources generate income for the federation. Constitutionally, it is 13% of revenue accruing to the federation account from proceeds from any natural resources (Federal Government of Nigeria, 1999).
Hence, it is paid before all other funds are disbursed to other tiers of government from the federation account. The 13% principle has been in operation since 1999.
In contemporary Nigeria, it is worth explaining because it has been an object of military decimation and elites’ contestations. This principle has been subject to fluctuations at different times in Nigeria. Historically, non-oil revenue sources have also been included.
Although derivation was employed in the 1950s, and this favoured the regions but excessive centralisation in the post-colonial period has whittled the derivation principle (Abubakar, 2005: 43-44). After the civil war, the derivation principle was no longer in favour of the states but favoured the government at the centre more (Luqman, 2014: 170). The global fall in the price of cocoa, groundnut, and oil palm, as well as the simultaneous increase in the global oil price, were part of the factors responsible for the shift of power and competition of state resources from the regions to the centre (Omitola, 2016: 181). Hence, it has ranged from 1%
to as low as 100%.
10 There was a time Cross Rivers ceased to be an oil producing states due to ceding some of its territory (Bakassi) to Cameroon in 2008 and the Supreme Court judgment between the state and Akwa Ibom state in 2012 over some oil wells. The court ruled that these oil wells be ceded to Akwa Ibom State.
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The Table below shows the horizontal revenue allocation formulas from 1946 till date.
Table 8: Horizontal Revenue Allocation Formulas from 1946 to the Fourth Republic Commission/Committee/Decree Formulas
The Philipson Commission (1946-1951) Derivation and even progress The Hicks-Philipson Commission (1952-
1954)
Derivation, needs, national interest, fiscal autonomy and even progress
Chick Commission (1953-1957) Derivation and fiscal autonomy
Raisman Commission of 1958 Derivation, fiscal autonomy, need and balanced development
The Binns Commission of 1964 Derivation, fiscal autonomy, need, balanced development and financial comparability
The Dina Interim Revenue Allocation Review Committee Report of 1968
Need, even development, derivation, and minimum responsibility of government
Decree 13 of 1970 Polulatuion-50%, Equality of States-50%
Decree 9 of 1971 Same as above
Decree 6 of 1975 Same as above
The Aboyade Technical Committee on Revenue Allocation of 1977
Equality of access to development opportunities- 25%, national minimum standard- 22%, absorptive capacity- 20%, independent revenue and tax effort- 18%, fiscal efficiency- 15%
The Okigbo Commission of 1980 Minimum responsibility of government- 40%, population- 40%, social development factor- 15%, Internal Revenue effort- 5%
Equity Act of 1981 (nullified by the Supreme Court)
Equality of States- 50%, population- 40%, landmass and terrain- 10%
Revised 1981 Act Equality of states- 40%, population- 40%, social development factor- 15%, internal revenue- 5%
1989 (NRMAFC) Equality of states- 40%, population- 30%, social development factor- 10%, internal revenue- 20%
1990 (NRMAFC) Equality of states- 40%, population- 30%, social development- 10%, landmass- 10%, internal revenue- 10%
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1992 (NRMAFC) Equality of states- 40%, population- 30%, social development- 10%, landmass- 10%, internal revenue- 10%
Proposal of the 1994/95 NCC Committee on Revenue Allocation
Equality of states (minimum responsibility of government)- 30%, population- 40%, internal revenue effort- 10%, landmass and terrain- 10%, population density- 10%
RMAFC in the Fourth Republic (Current as of 2020)
Equality of states- 40%, population- 30%, social development- 10%, landmass- 10%, internal revenue- 10%
Compiled by author from Babalola and Okafor (2019); National Bureau of Statistics (2020);
Suberu (2003)
The next section juxtaposes the vertical and horizontal formulas through the instrumentalities of Tables 7 and 8.