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UNDERSTANDING THE REVENUE ALLOCATION FORMULA
By Yushau A. Shuaib
Sept 3, 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
former are indices 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 horizontal
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.
Yushau A. Shuaib
yashuaib@yahoo.com
National Press Centre,
Abuja
____________________________________________________
Yushau A. Shuaib
How many people have we
made happy today from our actions?
Are we fair in our
communications and judgement of others?
Let think and communicate
positively.
My writings:
www.yashuaib.com
My PR Book:
www.yashuaib.com/fpr/book.htm
All about my former organisation:
www.yashuaib.com/rmafc.ht | 
