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What Is Revenue Allocation In Nigeria?(2023)

What Is Revenue Allocation In Nigeria?(2023)

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Revenue allocation refers to the practice whereby one level of government turns over a portion of the revenue it generates from taxation and other sources to another government level which is usually a lower level of government. In Nigeria, revenue allocation refers to the practice where the federal government shares a part of the revenue it generates with state and local governments without emphasizing what the funds must be used for. Revenue sharing makes for a better relationship between the federal, state and local governments. It is the starting point for decentralization of government powers and restoration of balance between all three tiers of government.

ALLOCATING REVENUE IN NIGERIA

Every government in the world chases after the economic development of its domain by trying to achieve macroeconomic objectives in a particular government system. There are several systems of government currently being practiced all over the world. Federation, Unitary, and confederation are three very good systems of government. Nigeria practices a federation type of government. The Nigerian government achieves its macroeconomic objectives by performing such functions as resource allocation, income distribution/redistribution and also ensuring stability across all three tiers of government. This system of carrying out government functions across different tiers of government is known as Fiscal federalism.

Fiscal federalism is defined as a system of taxation and public expenditure in which revenue generation powers and control over expenditure are vested in various tiers of government within a nation, ranging from the central/national government to local government which is the government at the lowest level. Basically, fiscal federalism is all about revenue generation and sharing amongst all levels of government for development of a nation.  

There is the issue of sharing revenue to different tiers of government in relation to their constitutionally assigned functions. The difference between the fiscal capacity of various tiers of government and their expenditure responsibilities is a striking feature of the Nigerian federal finance. There is also the issue of how to share revenue among the states and local councils.

REVENUE SHARING FORMULA IN NIGERIA

The Revenue Mobilization Allocation and Fiscal Commission (RMAFC) is charged with the duty of revenue sharing between the three tiers of government. Under the current revenue sharing formula, each month, the Federal Government takes the major share of 52.68% from the federation account, the 36 states get 26.72 % while the 774 local government councils get 20.6%. Several factors were considered in arriving at this revenue sharing formula. Some of these factors are;

  • NATIONAL INTEREST:

This arises as a result of the recognition of the fact that there is a need for the highest level of government to intervene and transfer funds to lower levels of government for strategic and important purposes. This is one of the prerogatives of the federal government.   

  • THE PRINCIPLE OF DERIVATION:

This principle harps on equity grant that the unit from which the bulk of the revenue is gotten be given an extra share of what is given to every other unit. This principle promotes efficiency through this system of sharing revenue to units within the generation.

  • THE PRINCIPLE OF POPULATION:

This principle is used to achieve equity by sharing revenue in proportion to population. This is because, at the end of the day, the aim of government is to improve the welfare of citizens so it is only appropriate that revenue is shared along that line. Data can be used to account for the many dimensions of the population such as age, sex, literacy and so on.

  • THE PRINCIPLE OF NEED:

In the allocation of revenue between the tiers of government, the need must be clearly defined in terms of functions of one tier of government against the functions of another tier as enshrined in the constitution and other corresponding requirements for financial expenditure and obligations.

  • MINIMUM NATIONAL STANDARD:

National standards in important sectors such as Education, Agriculture, Health and the likes must be considered while sharing revenue. The aim of this principle is to lift each unit within the federation up to the minimum acceptable standard and possibly above it.

  • THE PRINCIPLE OF EVEN DEVELOPMENT:

This principle is applied so as to ensure development is spread evenly across all units of the federation and not concentrated only in some areas. This prevents imbalances within the nation in terms of development.

  • EQUALITY OF STATE:

It is assumed under this principle that all states are created equally hence they must be treated equally. It is believed that the minimum set of responsibilities is the same in each state irrespective of size and capacity so it is important that equality is employed in sharing revenue.

  • INDEPENDENT REVENUE:

Under this principle, each level of government is expected to generate and keep some revenue for its use.

  • THE PRINCIPLE OF GENERAL ECOLOGY:

This principle addresses the increasing number and dangerous state of ecological problems in the country. Some states have become overwhelmed by the abundance of ecological problems in their areas whereas some states do not bear such weight. Thus, it is imperative that states being affected by these problems are aided in solving them.

  • THE PRINCIPLE OF DEVELOPMENT OF MINERAL PRODUCING AREAS:

This principle was introduced to address problems associated with the Niger-Delta region which is the oil-producing area of Nigeria. States from the region are now entitled to 13% derivation from what is generated from their region.

  • THE PRINCIPLE OF LAND MASS AND TERRAIN:

This principle was introduced with the aim of correcting the imbalance in the endowments of the states. It worthy of note that equality of assets does not necessarily translate to equality in the use for development opportunities. This principle thus seeks to provide some measure of succor for those that have less endowment of factors that aid social development.  

These principles, therefore, seek to provide preferential treatment to those that have less endowment of social development factors.

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CONCLUSION ON WHAT IS REVENUE ALLOCATION IN NIGERIA?

Revenue sharing is an issue that will continue to generate reactions from time to time from all the stakeholders in the Nigerian state. This is because there is always a constant need to improve the method of sharing revenue so as to ensure even spread of national resources to all units. This has led to several revenue sharing formulas over the years and there are constant calls for adjustment of the current formula.  

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