By Chris Otaigbe
Amid mounting revenue leakage and budget deficits, Revenue Mobilization Allocation and Fiscal Commission (RMAFC), organised a three-day orientation exercise on revenue generation for the revenue officials in Zamfara State.
This is also in preparation for the forthcoming review of the revenue allocation formula.
Designed to expose the revenue officials on the process of data collection and dissemination for the coming revenue sharing template, RMAFC’s Commissioner in charge of Niger State, said they were in the state as part of a nationwide sensitization programme initiated by the commission.
Speaking on Friday, September 11, 2020, at the closing ceremony of the exercise,
Bako said the commission had constituted six committees to facilitate smooth conduct of the exercise in the six geo-political zones in the country.
He said that his committee had so far visited Zamfara, Sokoto and Kebbi states in the Northwest.
The RMAFC official noted that some of the challenges leading to the low revenue generation in the state could be attributed to factors not incorporated in the revenue formula such as registration of Alma Jiri (Qur’anic school) pupils into formal school enrolment.
Bako listed other factors to include non-inclusion of natural resources, which has not been captured in national revenue formula to give the state 13 per cent derivation and high profile of tax defaulters for the Internal Revenue Generation (IGR).
In a remark, the state’s Commissioner for Local Government and Community Development, Yahaya Chado, commended the commission for organizing the exercise.
Chado said the exercise would avail the participants the opportunities to identify areas responsible for the low IGR and how to improve it.
He said the state government would leverage ideas and knowledge learnt from the exercise to boost its revenue base.
The sensitization program for Zamfara and hopefully other states in the federation could not have come at a better time, considering the state of the nation’s revenue and finances in general.
In an environment of dwindling revenue, arising from the unceasing downward slope in the demand for crude oil on the international market, the impact on how much goes to the three tiers of government vis-a-vis its crushing consequence on projects and the people has become a source of worry for the nation’s revenue managers.
Founded on the choice of government, Nigeria has chosen to adopt its fiscal centralization of revenue, resources and remittances, which have stifled the federated capacity of the country to achieve a robust diversity of income-generation derivable from resource management among the states.
Fiscal federalism in Nigeria has its legal basis laid in the constitution.
For example, the 1999 constitution contains various clauses in the second and fourth schedules on the powers of the federal, state and local governments and also on the system of revenue sharing and management of public funds. Details of these are contained in sections (i) 162-168, items 59 (part i), item A 1a, b and 2 part (ii) D 7-10 in the second schedule, item 32 a-c in the third schedule and item: 1b, section 7 of the fourth schedule respectively.
Fiscal federalism describes the division of fiscal resources and responsibilities among levels of government. It deals with problems arising from the situation of divided political jurisdictions within an economically integrated state-system. It covers efforts to define the appropriate functions and finances of the various tiers of government as efficiently and complimentarily as possible to maximize the welfare of the political community.
The age-long debate about the benefits of federalism and the attendant challenges it throws up on intergovernmental relations continues to call for proper administrative management of the nation’s revenue within the box of true federalism.
Experts believe modern federalism, to have emerged at about the same time as the concept of the market economy, with the need to create a common market that would facilitate the movement of goods. This has been a major reason for the formation of the federal union.
Some of the advantages of democratic federations include greater efficiency in public service delivery, better alignment of the costs and benefits of the government of a diverse citizenry and, therefore, more equity in so far as citizens get what they pay for and pay for what they get.
Other benefits include a better fix between public goods and their altitudinal features, especially the variable economies of scale of different kinds of public goods, increased competition, experimentation and innovation in the government sector, greater responsiveness to community and capacity to respond to their preferences, greater transparency and nearness to the citizen accountability in policy-making and a more appreciable level of sensitivity to sub-national regional concerns, including the power of constituent governments to provide for their own needs.
Fiscal decentralization is the most feasible option of achieving an efficient public sector and the goal of any government is the efficient allocation of resources and efficient distribution of national wealth.
Sixty years down the line, post-independent Nigeria continues to be submerged in the problem of how to share centrally generated revenue among Local Governments, States and Federal Government.
In the past thirty years, sources of public revenue in Nigeria are earnings from the sale of crude oil, taxes, levies, fines, tolls, penalties and charges. Accounting for about 80% to 85% of the total Ooilrevenues are the main source of public revenue, period 2001-09, oil revenues averaged 27% of GDP, while tax revenues averaged 6.4%. Oil revenues have been volatile, ranging from 35.6% in 2001 to 19.6% in 2009 when oil prices dropped as a result of the global recession. Even though revenue from Oil ramped up between 2010 and 2014, it dipped badly from the third quarter of 2014 and crashed at the outbreak of the coronavirus six years later, in 2020. This has completely changed the dynamics of generation, sharing and general management of revenue in the country.
Like Algeria, Angola, Equatorial Guinea and Libya, Nigeria rely almost entirely on one single type of tax, which is unlike Kenya, South Africa and Mauritania which show a comparatively stable blend of different types of taxes. Compelled by the damage caused by Covid-19, the Nigerian government has gone bullish in increasing its interventions in the non-oil sectors of the economy to diversify its revenue sources.
Every month, representatives of the Federal and State Governments hold a Federation Account Allocation Committee (FAAC) meeting. Chaired by the Minister of Finance, the committee presides over the distribution of revenue in the month, among the three tiers of government, other agencies and special saving fund accounts.
Revenue is shared in accordance with the vertical formula, as determined by RMAFC and approved by the National Assembly. The formula allocates 52.68%, 26.72% and 20.60% to the Federal, State and Local Governments respectively. The 52.68% to the Federal Government are paid into the Federation Account; while 26.72% and 20.60% accruing to the States and Local Governments are shared among the constituents by applying factors such as equality, population; landmass, IGR and social development. 13% is deducted as a first-line charge and is further shared among the oil-producing states.
The agencies charged with the assessment, collection and remittance of Federation Revenue from the oil and gas sector are Nigeria National Petroleum Commission (NNPC), Department of Petroleum Resources (DPR) and Federal Inland Revenue Service (FIRS).
This is not unexpected as the federal government is solely responsible for the collection of mining rights and royalties, petroleum profit tax (Nigeria’s major revenue source) and share VAT collection with the state government.
Currently, the sharing formula can be said to be better than between 1980 and 2008, in which about 93.9% of the Taxation, Revenue Allocation, and Fiscal Federalism in Nigeria, total Nigerian government revenues were collected by the federal government. In other words, both local and state governments put together collected less than 7% of Nigeria’s government revenues.
Over 70% of federal government revenue is from the federation account, while in real terms, the federal government generated only about 6% independent revenue between 2003 and 2008. Similarly, internally generated revenue (IGR) efforts of states at 14% in the same period are generally very weak. State governments depend largely on federal allocation, grants and proceeds from excess crude account as their major sources of funding. Also, the structure of local government revenue follows the same trend exhibited by federal and states government.
The discouraging state of the drive for internally generated revenue by the three tiers of government is not conducive for economic growth and prosperity.
For instance, in its quarterly review, Nigerian Extractive Industries Transparency Initiative (NEITI) announced that the Federation Accounts Allocation Committee (FAAC) shared the sum of N1.945 trillion to the Federal Government (FG), State Governments, Local Governments, and others in the first quarter of 2020.
This is the highest first quarter (Q1) disbursement since 2014. The disbursements since 2015 were N1.648 trillion in Q1 2015, N1.132 trillion in Q1 2016, N1.411 trillion in Q1 2017, N1.938 trillion in Q1 2018, and N1.929 in Q1 2019.
NEITI’s Director, Communications and Advocacy, Dr. Orji Ogbonnaya Orji, on Monday, May 11, through a Press statement, stated that lower remittances have been projected for the rest of 2020 due to the impact of the coronavirus pandemic. The three tiers of government are projected to struggle with revenues and so will need to be creative if they must survive the approaching storm.
Details of the disbursements showed that N791.4 billion was allocated to the Federal Government, N669 billion went to the State Governments and about N395 billion was allocated to the 774 Local Governments.
The balance went to the North East Development Commission, the Excess Crude Account, Federal Inland Revenue Service (FIRS), Nigerian Customs Service (NCS), and the Department of Petroleum Resources (DPR).
NEITI’s first-quarter review is exactly why the imperative for true federalism in resource revenue, generation, control and distribution has become necessary. A situation in which states are allowed to generate their own revenue and manage them appropriately to develop their respective communities and people.
In the forthcoming review of the revenue allocation formula, therefore, these are areas and paradigms the Revenue Mobilization Allocation and Fiscal Commission (RMAFC) would need to appraise with a view to coming up with a more realistic framework for the distribution of revenue among the tiers of government.
The orientation exercise on revenue generation for the revenue officials in Zamfara State should provide the ground for the agency to lay all the cards on the table for its officials and rigorously brainstorm on a more inclusive, integrated and innovation-encouraging formula that would fire up the near-limitless economic potentials of the largest black population on the planet.
