The promise of a new Revenue Formula, By Salisu Na’inna Dambatta

It is interesting that a new Revenue Sharing Formula by the Revenue Mobilization, Allocation and Fiscal Commission (RMAFC) will be worked out soon to replace the 20-year old existing version.

The Chairman of the Revenue Mobilization Allocation and Fiscal Commission, Mr. Elias Mbam said that in addition to a new sharing formula, the Commission will “expand the sources of revenue for the Federation.”

“I intend to do this through diversification in areas outside Oil and Gas, and that includes solid minerals, agriculture and manufacturing.”

There is no doubt that the existing renenue allocation formula has been subjected to criticisms by politicians and development experts who believe that the 52.68 per cent allocated to the Federal Government; the 26.72 per cent to the States and 20.60 per cent for  the 744 Local Government Areas in the country is due for retouching.

However, it is important to note that in the Nigerian peculiar way of doing things, every Revenue Allocation formula, from the first one introduced in 1948 (on the recommendation of Hicks Philipson Commission of 1946) as part of the Richardson Constitution for the three regions of Nigeria to the extant version, has always been criticised or opposed by people who expressed their various perspectives on how the formulae should have been formulated.

It is to tamper those varied perspectives with reasoning that a framework, based on over a dozen of factors or indices, was developed to accommodate various interests and address divergent concerns and foster national acceptance for it.

The indices in the framework listed by  Victor I. Lukpata, Ph.D of the Department of History and Diplomatic Studies, Federal University Wukari, Taraba State, are: Basic needs; Minimum Material Standards; Balanced Development; Derivation;Equality of Access to Development Opportunities;Independent Revenue/Tax effort;Absorptive Capacity and Fiscal Efficiency. Others are Minimum responsibility of Government; Population; Social Development Factor; Equality of States; Landmass and Terrain and finally, Internal Revenue Generation Effort.

The above principles have continued to serve as the yardstick for revenue allocation up to this day.

Each state of the Federation,  the 744 Local Government Areas and the Federal Government get a portion from the Federation Account based on these indices. On its part, the Federal Government gets the portion assigned to it because of the huge responsibilies it bears: ensuring national security, caring for the Armed Forces, the Police Force, Foreign Relations, building and maintenance of the most critical roadways, the railways, internal and international maritime services, Customs, Education, Health, Agriculture and National Food Security and the provision of many more money-guzzling public goods nationwide.

In the process of sharing the revenue, the Federal Ministry of Finance chairs the Federation Account Allocation Committee (FAAC) every month. The Secretariat of FAAC is at that Ministry, but the Department of FAAC is domiciled in the Office of the Accountant-General of the Federation (OAGF).

The Commissioners for Finance of the 36 states, a representative of the Federal Capital Territory, Abuja, are members of FAAC, as are revenue-related entities including the RMAFC, the Nigerian National Petroleum Corporation (NNPC), the Nigeria Customs Service (NCS), the Federal Inland Revenue Service (FIRS).

Much is at stake when it comes to revenue sharing. The quantam of money involved makes it so as the following facts reflect. The sum of N8 trillion was shared in 2018 in spite of the shut-ins in several oil installations. The Federation Account Allocation Committee (FAAC) disbursed a total sum of N6.418 trillion in 2017. It was N5. 1 trillion in 2016 and N6. 011 in 2015 respectly.

Every state in the country, except two, get most of the cash they use in paying  for the services and development projects they deliver to the public from FAAC disbursements. Their internal revenue generation ability is limited by many factors, including lack of seriousness.

That lack of seriousness led to paucity of funds in the states to the extent that workers could not be paid their monthly entitlements. The federal government lent the states just over N2 trillion, beside paying them billions of Naira in refund regarding Paris Club debt write-off in favour of Nigeria.

Given the life-line status of shared revenues for the three tiers of Government in the country, a promise to craft a new Revenue Sharing Formula for the country by the RMAFC is an exciting matter. So, the nation is eagerly awaiting  the new formula, which will ensure that the Federal

Government gets enough resources to provide the kind of services expected from the Centre.

However, it is possible to expand and further diversify the revenue base. The Federal Inland Revenue Service has demonstrated that by bringing more taxables to the tax net.

Indeed, the FIRS has announced that it is now targeting a tax base of 45 million taxables, according to the Executive Secretary, Joint Tax Board (JTB), Mr Oseni Elamah.

Elama said that as at December, 2018, Nigeria’s tax payers data base expanded from 20 million (in 2015) to 35 million. This is a huge increase by any measure.

The taxpayers base can actually surpass the 45 million target if the over 1,000 uncaptured sources of tax identified by researchers commissioned by the Federal Ministry of Finance are brought into the tax net. This was disclosed by former Minister for Finance, Mrs. Kemi Adeosun in a speech in Kano on July 14, 2016 at a Conference on Taxation and Revenue generation.

“Minister of Finance, Mrs. Kemi Adeosun in Kano said the Federal Government had identified more than 1,000 dormant revenue lines, assuring, however, that such huge dormant revenue opportunities will be maximised,” a medium reported.

The RMAFC should in collaboration with other relevant sister agencies take advantage of the work done earlier in its Chairman’s drive to expand the revenue base for the three tiers of Government. It is a desirable and doable task.

The Muhammadu Buhari-led administration will simply add another important achievement in the huge legacy it will leave behind for the benefit of future generations of Nigeria if the revenue sharing or allocation formula is redesigned and dormant revenue-yielding lines are activated.

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