RMAFC and last lap of new revenue sharing formula

The leadership of the Revenue Mobilisation, Allocation and Fiscal Commission (RMAFC), inaugurated on June 27, 2020 by President Muhammadu Buhari, on Thursday April 8, submitted the proposed new revenue sharing formula.

This was after a painstaking effort by the commission to gather and synthesise inputs from stakeholders most of which moved for the shedding of weight by the federal government and more allocations to the states and local governments.

The president when he inaugurated the board stressed that it should not compromise the constitutional mandate of the commission for any reason.

The RMAFC was created by law to monitor the accumulation and disbursement of income from the federation account.

The commission is also to advise federal, states and local governments on tax efficiency and the methods by which their revenues should be increased, among others.

The current revenue sharing formula is as follows: federal government 52.68 per cent, states 26.72 per cent, local governments 20.60 per cent, and 13 per cent going to oil producing states. It came into force in 1992.

The proposal by the commission is for the federal government to have 45.17 per cent, state governments, 29.79 per cent and 21.04 per cent for the local governments.

After Buhari received the report from Chief Elias Mbam, the Chairman of RMAFC, he said he would await the final outcome of the constitutional review process before presenting the report of the review of the vertical revenue allocation formula to the National Assembly as a bill for enactment.

''Ordinarily, I would have gone ahead to table this report before the National Assembly as a bill for enactment.

''However, since the review of the vertical revenue allocation formula is a function of the roles and responsibilities of the different tiers of government, I will await the final outcome of the constitutional review process, especially as some of the proposed amendments would have a bearing on the recommendations contained herein,'' he said.

Buhari assured that the report will be subjected to internal review and approval processes, while awaiting finalisation of the efforts by the National Assembly.

According to the president, this strategy, rather than issuing an Executive Modification order, as was done in 1992, is more in line with entrenching democratic tenets.

He thanked Nigerians, especially the states and local governments, for making their inputs through the broad stakeholder engagement processes that produced the report.

''I am aware that the present revenue allocation formula has not been reviewed since the last exercise carried out in 1992.

''Considering the changing dynamics of our political economy, such as privatisation, deregulation, funding arrangement of primary education, primary health care and the growing clamour for decentralisation, among others, it is necessary that we take another look at our revenue sharing formula, especially the vertical aspects that relate to the tiers of government.

''This becomes more compelling as we need to reduce our infrastructural deficit, make more resources available for tackling insecurity, confront climate change and its associated global warming and make life more meaningful for our rapid growing population,'' he said.

According to the president, as an advocate for grassroots development, he has always remained committed to ensuring that all tiers of government are treated fairly, equally and justly in the sharing of national resources.

''I want to let you all know that I have keenly followed most of the discussions held in the geo-political consultative process and one thing that struck me clearly was the agreement that a review of our vertical revenue formula cannot and should not be an emotional or sentimental discussion and it cannot be done arbitrarily.

''All over the world, revenue and resource allocation have always been a function of the level of responsibilities attached to the different components or tiers of government.

''I am, therefore, happy to note that the discussions were held along these lines and rested squarely on roles and responsibilities as spelt out in the 1999 Constitution (as amended).''

According to the president, the proposal seeks a 3.33 per cent reduction in the current Federal Government allocation and on the other hand an increase of 3.07 per cent and .44 per cent for the states and local governments.

He added that with regard to Special Funds, the report proposed an increase of .2 per cent for the Federal Capital Territory (FCT) and a decrease of .38 per cent for Development of Natural Resources.

Mbam, who also spoke, said the leading philosophy behind the proposed review was guided ''by the need for distributive justice, equity and fairness as enshrined in relevant sections of the 1999 Constitution (as amended)''.

He said that the principles took into cognisance the indivisibility of the country, public opinion and weighted constitutional responsibilities and functions of the three levels of government.

He reiterated that the proposed vertical revenue allocation formula suggested 45.17 per cent for the Federal Government, 29.79 per cent for state governments and 21.04 per cent for the local governments.

Under Special Funds, he said the commission recommended 1.0 per cent for Ecology, 0.5 per cent for Stabilisation, 1.3 per cent for Development of Natural Resources and 1.2 per cent for the FCT.

In arriving at the new vertical revenue allocation formula, Mbam told the president the commission had wide consultation with major stakeholders, public hearing in all the geo-political zones and administered questionnaire.

He said the commission also studied some other federations with similar fiscal arrangements like Nigeria to draw useful lessons from their experiences.

While explaining the major reasons for the exercise, Mbam stated that since the last review was conducted, the political structure of the country had changed with the creation of six additional states in 1996, which brought the number of states to 36 and local government councils to 774 from 589.

''There have been considerable changes arising from the policy reforms that altered the relative share of responsibilities of the various tiers of government such as deregulation, privatisation and the lingering controversies over funding of primary education, primary healthcare.''

Mbam added that inadequate and decaying infrastructure, as well as heightened widespread internal security challenges across the country also necessitated the exercise, among others.

It was in line with President Buhari's warning that the RMAFC should not compromise its mandate that the commission held stakeholders meeting in all the geo-political zones and the FCT.

At the various meeting, Mbam reiterated that the commission would work to increase revenues shared by federal, state and local governments.

"We need to increase the sources of revenue for the federation account; in other words, we will focus more of our efforts on how to increase the size of the pie to be allotted to the three levels of government, instead of struggling to share a shrinking pie.

"One of our responsibilities is to review the income distribution formula and I say that we will fulfill our mandate.

"The problem is not just adding and subtracting; it arises from a process; everything you get is derived from a process; more responsibilities, more money," Mbam added.

Mbam, when he spoke at the South-West stakeholders meeting held in Lagos reiterated that the new revenue sharing formula must follow a process.

He said: "If it is confirmed that the Federal Government has a high responsibility, it will get the equivalent of that responsibility as an allowance.

"If it is the local government that has more responsibilities, it will be done in the same way. Our position is that the more responsible a level, the more money it makes."

Gov. Babajide Sanwo-Olu of Lagos State, who spoke at the public hearing, said the review would allow states to meet their growing responsibilities.

The governor said the current formula for sharing revenue between levels of government, which became operational about 29 years ago, was long overdue for change.

"Nigerian fiscal federalism should be adjusted to develop more spending responsibilities with appropriate allocation of revenues to lower levels of government.

"That will enable the Federal Government to focus on issues of national interest, like security and defence, among others.

"The Lagos State government proposed a revenue distribution formula: Federal Government: 34 per cent, states 42 per cent, local government councils, 23 per cent and Lagos State (special status, 1 per cent).''

Gov. Nyesom Wike of Rivers who spoke at the South-South public hearing held in Port Harcourt aligned with his Lagos State counterpart.

He said that "the current revenue allocation formula, a result of the military decree as far back as 1992, has passed 22 years of democratic dispensation, obviously could not meet the current realities of the nation."

He noted that the Federal Government was overloaded and overburdened and could not effectively put in place a federal system as envisioned.

"It is only fair that allocations to the Federal Government be reduced.

"In this way, most of the responsibilities that belong to the Federal Government will now be taken away and given to the states," he said.

Participants at the South-East Public Hearing held in Owerri also called for greater allocation of revenues to states.

Gov. Hope Uzodimma of Imo reiterated that the current income allocation formula which was last revised in 1992 was obsolete, given the realities of the economy and developments following the last review.

On his part, Commissioner of Finance in Ebonyi, Mr Orlando Nweze, decried the imbalance in the country's income-sharing formula.

Nweze said the revenue allocation should be revised to 40 per cent for the Federal Government, 35 per cent for state governments and 25 per cent for local government councils.

The consensus during the public hearing across the country was the imperative of review. The proposed shedding of Federal Government's share by 3.33 per cent is a demonstration of the independence of the commission.

The final verdict on new revenue sharing formula is now in the court of the legislature. The national legislators are also expected to be fair to all tiers of government.