Revenue Allocation: Between RMAFC and States

Revenue Allocation: Between RMAFC and States

By: Abubakar Jimoh

Engr. Elias Mbam, Chairman RMAFC

Engr. Elias Mbam, Chairman RMAFC

The ongoing agitation for the review of revenue allocation formula has brought to the fore questions on the tangible benefits derived by the people at both State and Local Government levels from the huge monthly revenue allocation to their respective States from the Federation Account.

The issue of revenue allocation formula arose with the discovery of crude oil and its replacement for agricultural produce as the main source of revenue to the country. This led Nigeria to become a member of the Organization of Petroleum Exporting Countries (OPEC) in 1971 which paved way for the country to go into joint venture with international companies, and derived profits not only from the petroleum, but also from the mining rents and royalties.

The existing global financial crisis which has extended to every part of the world has worsened the regional, national and global economic environments. This has a significant negative consequence on the economic activities of the state governments as the economy witnesses not only drastic fall in standard of livings, but also amplifying the poverty level since governments are financially incapacitated to discharge their mandates to the states.

Following this, states have explored various strategies including imposing multiple taxes on the masses and private entities to augment the Internally Generated Revenue. This in turn has generated a lot of heated debates, controversies and unexpected protests from individuals, civil society, and local industries.

In recognition of its tireless campaign in the promotion of transparency and accountability towards the nation’s building, Civil Society Legislative Advocacy Centre (CISLAC) recently received an invitation to present a view at two-days North-West Zonal Public Hearing on the Review of the Revenue Allocation Formula organized by the Revenue Mobilisation Allocation and Fiscal Commission (RMAFC) in Kaduna.

As against the State governors, who demand drastic reduction in the current 52.8% allocated to the federal government to augment the States and Local Governments’ quotas, CISLAC recommended 45%, 30% and 25% to federal, state and local government respectively, primarily to achieve a justifiable and transparent vertical review of the formula.

Not surprisingly, the submission by CISLAC was triggered by the rampant over-reliance of the States on allocation from the federation account with no consideration for more realistic and viable means to diversify their economy for effective Internal Generated Revenue (IGR). CISLAC bemoaned the fact that the state governments, except Lagos could hardly depend on their IGR as they heavily rely on the monthly allocation from the federation account for survival.

CISLAC noted that effective and sustainable fiscal administration can only be realized through improved billing and collection procedure, exemption policies with particular attention to the removal of subsidy that currently benefit more affluent households, progressively higher charges for relative expenses, effective revenue rising policies, equal resource allocation to the peoples in the states and local governments; restoration of fiscal discipline, honesty and accountability in collection of tax and other duties; workable technical capacity in revenue generation; sufficient legal framework for tax regime and most especially creating an enabling environment for investment by private sectors.

While many state governments have blamed their low IGR on the fact that most of the headquarters of the industries sited in their states are located in commercial centres like Lagos, Kano and Port-Harcourt. However, should that be the case, it would be economical enough for each state to put in place enabling environment to attract individuals and boost commercial activities like those states.

Besides, in farming communities, local government areas could establish cassava, yam, cocoa yam, potato, banana farms including plantain plantations. The commercial cultivation of these food crops would not only enhance food production but also turn out to be a genuine source of revenue generation.

More importantly, the contentious security vote is another sensitive expenditure that drains the budgets of most states. It is a conduit pipe depriving Nigerians of improved standard of living. If the security votes are judiciously utilized should the country continue to witness amplified level of insecurity ranging from kidnapping, killings, bombings and robberies? The failure in security intelligence can be traced to inadequate training of security operatives. It is a known fact that inadequate funding of Nigeria Police is reflected in the pitiable appearance of these security personnel on the streets of Nigeria.

Every fiscal year, governments at all level earmark high percentage of their budgets to capital expenditure. Conversely, only few have well defined concrete projects to show at the end of their tenure in office. Consider the bad shape of roads in some states regardless of the vast budget voted annually for capital expenditure. Thousands of lives are lost through road accidents. It is certain that Nigeria continues to incur economic losses running into billions of naira every year as a result of bad roads.

Over the years, in spite of the states’ enormous resources and potential, poverty is widespread throughout the nation. For instance, CISLAC noted the aggressive rise in poverty level in the country as 1980, 17.1; 1985, 34.5; 1992, 39.2; 1996, 67.1; 2004, 68.4; and 2010, 112.47. Also, basic indicators have placed Nigeria within the 20 poorest countries of the world. The issue of poverty can be easily traced to underutilization of resources in most states especially in the area of agriculture. Agricultural research and development are not well funded by governments. These could have opened up windows of opportunity in job creation and other allied developments.

Education is also badly financed and managed. In fact, managers of primary, secondary and tertiary institutions in Nigeria agree that these institutions are grossly underfunded. There are enough evidences on the extent of dilapidation associated with the primary and secondary school buildings in parts of the country; the non-payment of teachers’ salaries and allowances which has caused frequent strikes; the lack of necessary teaching and learning facilities at all levels of the educational system; and poor working conditions of teachers in the country.

Indeed, Nigeria is blessed with a number of well-trained doctors. However, medical facilities in Nigeria are in poor condition, with inadequately trained nursing staff. Diagnostic and treatment equipment is most often poorly maintained, and medicines are unavailable. Inadequate healthcare system in Nigeria has led to avoidable deaths in the country

The above-mentioned problems do not have anything to do with the review of Revenue Allocation formula. Rather, these problems are traceable to gross mismanagement and lack of accountability on the part of governments resulting in diversion of substantial resources from the monthly disbursement from the Federation Account

Unfortunately, the states clamouring for the review in revenue allocation formula ought to remember that the Federal Government has assumed more responsibilities which were duly the responsibilities of the states and local governments because of the ineptitude of the states like ecological problem, defence and security matters as well as transportation. In this regard, the Federal Government would continue to clamour for additional funds from the Federation Account to discharge such responsibilities.

In addition the states have completely annexed the allocations that go to their local government councils. We doubt if there is any local government chairman in Nigeria that has total control of his/her allocation without the interference of the state

The country has lost several billions of naira to pen robbery at the local, state and even the national levels as some executives squander their states’ allocations. It is no more news to us that some political office holders especially the executive and legislative arms of governments are involved in various financial crimes such as financial misconduct, bribery, corruption, money laundry, fund mismanagement and embezzlement

CISLAC therefore urged the States to focus more on Internally Generated Revenue (IGR) from at state level to avoid over reliance on federation account; accountability and transparency in the utilization of public funds. The Centre called for the responsive inclusive participation on the monitoring of received and disbursed allocation at all level; as well as give the office of the auditor general both at national and state level independence to guarantee transparency and accountability.

Furthermore, CISLAC encouraged Civil Society Organizations and all relevant stakeholders to engage more in evidence-based advocacy rather than making premature judgments on the effective and productive allocation formula

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