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Analysts doubt restructuring of allocation formula

Despite the recent announcement by the Revenue Mobilisation, Allocation and Fiscal Commission (RMAFC) that it will be ready to present a new revenue sharing formula to President Muhammadu Buhari for onward transmission to the National Assembly by December, analysts at United Capital Research have said that they don’t see the nation abandoning its current revenue sharing formula in the near term.

 

In a note obtained by New Telegraph on Friday, the analysts said their reluctance to believe that a new revenue sharing formula was imminent is hinged on the failure of previous attempts to restructure the revenue sharing formula as well as the current  challenging fiscal position of the Federal Government.

 

The analysts stated: “The revenue allocation formula between the tiers of government in Nigeria has remained a source of constant debate on its adequacy in ensuring fairness in distribution. Earlier this year, the Chairman of the Revenue Mobilisation Allocation and Fiscal Commission (RMAFC), Dr Elias Mbam, announced that a review of the allocation formula would happen before the end of 2021.

 

“Truly this has commenced, with public hearings across the different geo-political zones of the country. Earlier in the week, the Northwest geo-political zone held its own public hearing.

 

At the hearing, they stated that states and local governments should get the biggest percentage of revenue allocation, suggesting a 60 per cent and 40 per cent allocation ratio to the two-tiers of the government (states & LGAs) and the Federal Government respectively.”

 

They pointed out that the current revenue allocation formula, which specifies that  52.7 per cent, 26.7 per cent and 20.6 per cent of the revenue be shared to the federal, state and local governments respectively, has been in existence since 1992, noting this sharing formula was agreed upon due to several key responsibilities such as defence and power being placed on the exclusive list, requiring the Federal Government to take a greater share of revenue.

 

According to the analysts, “proponents arguing in favour of a review to allocate greater percentage to states and local governments have pointed to the fact that in 1992, Nigeria had 30 states and 589 LGAs, both of which have now increased by six states and 189 LGAs. The resulting impact has been a reduction in allocation to each state and LGA, given that there are now more ‘mouths to feed.’

 

“On the other hand, state and local governments have been heavily criticised on their lack of innovation to improve internally generated revenues (IGR) evident in their overreliance on FAAC allocations from Federation account.

 

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