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The states are dying

There is a hardly a day that goes by now, that we don’t read in the media of billions of naira being stolen by an agency in the central government. The whole thing is sickening.


The rate at which money is being stolen in the central government has become like a curse. It is as if there is a competition among top government officials on the amount of how much you could steal. The main reason is that there is too much money in the centre and there is lack of coordination.


Someone even suggested that we don’t have any leader in the centre. In an ideal situation it should not be tolerated. I think the time is ripe now to ask how come the central government has so much money while the states and the local governments are on financial ventilator. The last time we examined the formula for revenue allocation was in 1980. And the report was never implemented till today.


The military came in 1984 and bungled everything. The present revenue allocation formula favours the centre because it was produced by the military. And as we are aware the military prefers a central command structure.


In spite of the extravagant lifestyle of governors judging by the number of the expensive Lexus and Toyota CVR cars in their convoys, the states are dying for lack of funds. Yet the centre keeps on spending money like drunk sailors. The rural areas have been abandoned and neglected.



The other day the Vice President, Yemi Osinbajo, cried out that the cost of governance has become too expensive. To me that is understatement. The cost of running government in Nigeria is killing Nigeria. And a docile society like ours tolerate it. It looks as if we have surrendered. We should ask ourselves why the central government has become so mighty. The major reason is the issue of revenue allocation.


In 1980, President Shehu Shagari attempted to address the issue of revenue allocation. On November 21, 1979, he set up the Presidential Commission on revenue allocation. The commission was headed by Chief Pius Okigbo.


The commission toured the then 19 states of the federation and later submitted his reports to President Shehu Shagari on June 30, 1980. One hundred and thirteen individuals submitted memoranda to the commission while 48 associations, institutions and professional bodies equally submitted memoranda to the commission. All the 19 states then submitted their memoranda to the commission.


But let us look at the various revenue commissions that we have had till date. In political as well as fiscal terms, Nigeria operated a unitary form of government between 1914 and 1946. There was therefore no need for any system of revenue sharing.


The impending constitutional change to be introduced in 1946 by the Richards Constitution created the need to formulate proposals to enable the newly created Regions, North, West, and East, to carry their new responsibilities. The new Constitution gave to the Regions some measure not autonomy but of administrative authority and responsibility, but left the supreme fiscal powers squarely with the Central Government. It was therefore necessary to make available to the Regions revenues to enable them to undertake their new functions.


The Phillipson Commission was to formulate the administrative and financial procedures to be adopted under the Constitution. The dissatisfaction with the Phillipson scheme and changes envisaged by the 1951  MacPherson Constitution which introduced a quasi-federal structure of government led to the appointment in 1950 of Professor John Hicks (1904-1989), a British Economist and Sir Sydney Phillipson (1892-1966), a British Knight and finance administrator to develop a scheme that “over a trend of five years” would achieve a “progressively, more equitable division of revenue.”


By recommending that the Regions should have the power to raise, regulate and appropriate to themselves certain items of revenue, Hicks and Phillipson laid the foundation for the principle of independent revenues whose seeds were already in Phillipson’s category of “declared” revenues. Since, however, these revenues could not meet the needs of the Regions, some centrally-collected revenues would have to be shared between them.


Accordingly, the Commission proposed the principles of derivation, need, and national interest. It gave 50 per cent of the import and excise duty on tobacco and 100 per cent of the duty on motor fuel back to the Regions on the basis of derivation established by reference to the relative consumption in the Region.


It gave capitation grants to the Regions on the basis of need established by reference to population. But since at the time when the commission was doing its work, the last census was in 1931 and the next census was two-three years away (1953), the population factor was determined by reference to the male adult tax payers in each Region. Indeed, the 1953 population was, in many places, grossed up from the nominal tax rolls.


The Commission gave special grants to the Regions on the basis of national interest: 100 per cent of the cost of the Regional police force; 50 per cent of the cost of Native Authority police force; and 100 per cent of the grants given for education by the Regional My Impression National Assembly, Keyamo and 774,000 special jobs On Marble Printed and Published by Daily Telegraph Publishing Company Ltd: Head Office: No. 25B, Talabi Street, Off Ade  Government to the voluntary agencies and local authorities. The Commission’s Report had one outstanding feature.


A single factor was used for strict and direct revenue allocation a two-factor formula, of need and national interest was used for grants. This took care of principles that could not readily, for statistical and other reasons, be accommodated in the formula for direct allocation. The attempt to look beyond allocation of revenues to cover merely recurrent expenditures was ahead of its time for the then Nigerian Government.


The Commission’s recommendation on a uniform tax system and on the need for a Loans Commission for the administration of loans to the Regions and the Centre were rejected by the Government. Agitation soon built up from the West to push the principle of derivation to the limit by applying it to all items of federally collected revenues. The North pressed for the deepening of the application of the principle of need while the East pressed for the extension of the principle of national interest.


The air was thick with bitter controversy between the Regions. Opportunities for a review of the Hicks-Phillipson proposals came with the Constitutional Conference in 1953. The (1954) Lyttleton Constitution gave full-selfgovernment to the Regions while the Centre had to wait until 1957 to attain self-government, and until 1960 to achieve independence.


Sir Louis Chick was appointed to ensure among others, that the total revenue available in Nigeria was allocated in such a way that the principle of derivation was followed to “the fullest degree” compatible with the needs of the Central and the Regions.


Chick followed this injunction strictly. He expanded the allocation scheme to cover not only import and excise duties but export duties, mining rents and royalties, personal income taxes. Bitter criticism of the scheme developed problems of measurement of consumption of imports (except for motor spirit and tobacco) and instability in export duty receipts. The Constitutional Conference of 1957-58 provided opportunity for a review of the Chick scheme.


The appointment of Sir Jeremy Raisman, civil servant and Professor Ronald Tress (1915- 2006), a British Economist, envisaged the impending independence of Nigeria which was to follow in 1960. The Raisman Commission was to review the tax jurisdictions as well as the allocation of revenues from these taxes, but such that the Regions had the maximum possible proportion of their income within their exclusive competence.


This prescription for maximum independent revenues for the regions could not be fully realised. The Raisman formula remained in force until 1965 by which time oil revenue was beginning to show signs of becoming a dominant factor in the structure of the federally collected revenues.


Increases in the import duties and the growth of manufacturing industries which yielded higher excise revenues all helped to enlarge the revenues of the Regions. Raisman had recommended that subsequent reviews should relate only to the mining rents and royalties and the allocation from the Distributable Pool Account. By 1963, the Republican Constitution had been introduced necessitating another review of the existing scheme.


The Binns Commission was appointed under Section 164 of the 1963 Republican Constitution. Its terms of reference were, among others, to review and make recommendations with respect to the allocation of mining rents and royalties and the distribution of funds in the Distributable Pool Account among the regions. Binns, therefore, focused on the distributable pool account. He increased it to 35 per cent of revenues from import duties, mining rents and royalties and shared the account in the proportion of North 42 per cent, East 30 per cent, West 20 per cent, and MidWest 8 per cent.


He applied the principle of “financial comparability”, for the first time; it was somewhat of a hybrid between need and even development. It is determined by the cash position of each Region, its tax effort and the standard of service it provides. Within a year of the Binns Report, the military intervention in Government in 1966 changed the political environment.



The last but not least is the Professor Ojetunji Aboyade (1931-1994) technical committee on revenue allocation of 1977. The committee’s approach to the problem of revenue allocation extended to problems of development. It recommended that all federally-collected revenues, without distinction, be paid into the Federation Account.


The proceeds of this account are to be shared among the Federal Government, the states and, for the first time, local government councils in the order of 60 per cent, 30 per cent and 10 per cent respectively. This recommendation brought the states and local government councils into the most lucrative revenue sources: petroleum profit taxes and companies income tax.


The principles for sharing among the states were built into a five-factor formula: equality of access to development opportunities, national minimum standards, absorptive capacity, independent revenue and tax effort, and fiscal efficiency.


The formula was to be applied to increments, in the account beyond the level of the previous year. The scheme was accepted, but modified by the Federal Military Government.


The governor’s forum should as a matter of urgency press for a new revenue allocation formula. It is not too late for the states and the local government to be saved. The death of the local and the states governments will affect governance in this country.

Teniola, a former director at the presidency writes from Lagos.



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