RMAFC on review of revenue allocation formula
… both vertical and horizontal allocations to be put in consideration.
The Revenue Mobilization Allocation and Fiscal Commission (RMAFC) has commenced the review of the revenue allocation formula with a pledge to complete the exercise before the end of the year.
Chairman of the Commission, Dr. Mohamed Bello Shehu, disclosed this in Abuja on Monday during an interactive session with journalists and civil society groups.
The RMAFC chairman provided details of the current vertical sharing formula among the three tiers, which allocates 52.68 percent to the federal government, 26.72 percent to the states, and 20.60 percent to local governments.
“Out of the 52.68 percent to the federal government, there are 4.18 percent spatial funds, including 1 percent FCT, 1 percent ecological, 1.68 percent natural resources development fund, and 0.5 percent stabilization,” he explained.
He added that the review will cover both vertical and horizontal allocations, with the latter determined by indices such as school enrollment, hospital beds, social development, and inequality.
Dr. Shehu lamented that the last review of the formula was carried out as far back as 1992 under the military administration, stressing that this has left the country operating with an outdated system.
According to him, “The Constitution as amended says review from time to time the revenue allocation formula and principles in operation to ensure conformity with changing realities in line with the constitutional responsibility and in response to the evolving socio-economic, political and fiscal realities of our nation.”
He explained that although an attempt at modification was made through an executive order under former President Olusegun Obasanjo in 2002, the country has since undergone significant changes.
“So many changes have taken place. States were created under the military demographically, economically, institutionally and constitutionally,” he noted, stressing that a new review is now urgent.
The RMAFC boss said the exercise would reflect constitutional amendments that allow states to undertake functions previously reserved for the federal government. “There had been some changes in terms of the differences between the concurrent list and the exclusive list. For instance, states can now engage in railway development and prison management, which used to be the exclusive preserve of the federal government,” he explained.
He also stressed the importance of fiscal federalism in driving economic growth across the country. “The situation has made it essential to re-evaluate the structure of fiscal federalism in order to foster economic growth in individual states, enabling them to become independent from the central government and ensuring equity, responsiveness and sustainability,” Dr. Shehu said.
According to him, federating units should compete to provide services to their people rather than depend solely on the federal government. “In any federation, the federating units should compete with one another in trying to provide services to their people. It’s common knowledge that in every administration that comes in, the majority of Nigerians focus mainly on the federal government, the president, the president, the president,” he added.
Shehu also spoke on the 1.68 percent Natural Resources Development Fund, lamenting its poor utilization over the years. “If states want to do something on tourism, agriculture, and solid minerals, they apply and the Commission assesses, and forwards it to the president for approval. But over the years, from 1999 to date, the story is not too good,” he said, adding that the late former President Muhammadu Buhari had observed that certain disbursements were not in line with the original objectives.
He pointed out that the Commission was designed by Nigeria’s founding fathers as a federation commission, not as an appendage of any government in power. “For now, the Commission is fully empowered constitutionally, financially and with representation from each and every state of the Federation,” he said.
On the process of submitting the new formula, Dr. Shehu noted that constitutional provisions require the Commission to submit its recommendations to the President, who would then forward them to the National Assembly. “What happens if Mr. President decides not to send it to the National Assembly, which is what happened like I think two or three times in the past? I think the National Assembly is up to the task,” he stated.
He assured that the ultimate goal of the review is to deliver a revenue-sharing formula that is “fair, just and equitable” and reflective of the responsibilities and needs of the federal, state, and local governments. He said that the Commission will carefully assess service delivery obligations, fiscal performance, and development disparities.
The Commission plans to adopt an inclusive, data-driven and transparent approach, engaging a wide range of stakeholders including the Presidency, National Assembly, state governors, the Association of Local Governments of Nigeria (ALGON), the judiciary, ministries and agencies, civil society organizations, traditional rulers, the organized private sector, and development partners. According to Shehu, the process will also draw on international best practices and empirical research.
Contributing to the debate, Professor Uche Uwaleke of Nasarawa State University stressed the importance of ring-fencing funds to ensure they are used for infrastructure. “Now that states have to take care of electricity and railways, we can say the extra money should be for infrastructure funds. So that when the monies go to states and local governments, they are not looked at as discretionary funds that can be used for recurrent spending,” he said.
In his intervention, Professor Uche Uwaleke of Nasarawa State University also urged that Nigeria benchmark its horizontal allocation criteria against other federations like Canada, Brazil and India. He recommended adjustments to the weightings of inequality, population, landmass, internally generated revenue, and social development efforts.
He further noted that with the federal government relinquishing 5 percent of its VAT share to states under new tax laws, it was critical to ensure that increased allocations to the states are properly targeted and ring-fenced to ensure that the allocations are abused or used for other purposes other than those the revenue formula specifies.
