Revenue Allocation in Nigeria: Definition and the Sharing Formula

Have you ever wondered the formula for Revenue Allocation in Nigeria and why some states get more allocation than the order? if yes this is for you. get the full details below.

Nigeria being a heterogeneous country practice a system of government known as the Presidential system of Government of which revenue allocation is very paramount.

While it’s constitutional for all the 36 States in the country to be remitting the revenue generated over the month to the Federal Government purse.

The Federal Government is equally duty-bound to sharing the revenue received to the entire States. This is entrenched in S.162 of the Constitution of the Federal Republic of Nigeria, 2011 (as altered).

But before going further, it’s ideal to define what revenue allocation in Nigeria is all about.

What Is Revenue Allocation?

Generally, there is no authoritative definition for the concept “Revenue Allocation.” However, it can be defined as the act of sharing resources between States.

In Nigeria parlance, revenue allocation could be defined as the practice whereby the federal government shares and distribute some part of the generated revenue to States and the local governments.

Be enlightened that it is never the work of the Federal Government to state or emphasize what the funds should be used for.

Thus, sharing of the generated revenues build a cordial relationship between the federal, state as well as the local governments.

Revenue allocation, therefore, is the engine room for the decentralization of governmental powers as well as restoration of the long lost balance between the three tiers of the government.

ALLOCATION OF THE GENERATED REVENUE IN NIGERIA.

If there is anything that could easily cause a hullabaloo and uproar between the three tiers of government, it has to be fund.

Essence, the allocation of the generated revenue to the state and local government differs. The fund is not equal and the same.

Of course, some state is generating revenue to the Federal Government coffers than the other and it is reasonable if they receive a substantial amount than the others.

Yet, there is usually an issue when it comes to sharing and distributing revenue to the other tiers of government in line with the constitutionally assigned functions.

Most importantly, the distinction between the fiscal capacity of the other tiers of government couple with their expenditure onus is important to federal finance.

THE REVENUE SHARING FORMULA IN NIGERIA

The body charged with the onus and responsibilities of sharing revenue between the three tiers of government in Nigeria is the Revenue Mobilization Allocation and Fiscal Commission (RMAFC).

Each month, based on the present revenue sharing formula, the Federal Government receives a substantial share of 52.68% out of the federation account.

All the 36 states in Nigeria get 26.72 % in total while the 774 local government areas receive 20.6%.

However, there are many factors that were considered before arriving at this kind of odd revenue sharing formula.

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These factors shall be explicitly explained below.

  1. NATIONAL INTEREST

It is obvious that there is a need for the highest level of government to come to the aid of the lower levels in terms of funds for some strategic purpose.

This kind of situation is one of the prerogatives functions of the federal government. Hence, the National interest has to be put into consideration while sharing revenue.

  1. THE PRINCIPLE OF DERIVATION

This principle is another important factor considered before arriving at the revenue sharing formula highlighted above.

There is a need for an equity grant to the state generating bulk revenue for the nation. Giving such state an extra share for a work well done isn’t too much to do.

  1. THE PRINCIPLE OF DEVELOPMENT OF MINERAL PRODUCING AREAS

The Constitution of the Federal Republic of Nigeria, 2011 as amended categorically gave this principle in terms of revenue sharing and allocation.

In a bid to curb the menace of the Niger-Delta region i.e the oil-producing part of the country. The Constitution gave these States 13% derivation entitlement from the revenue generated in their region.

  1. THE PRINCIPLE OF POPULATION

Also, revenue is being allocated based on the state population proportions. After all, the aim of the government is to enhance the citizen’s welfare. Thus, it is appropriate if revenue is shared in that regard.

  1. THE PRINCIPLE OF NEED

In the course of revenue allocation between the three tiers of government, each tier needs has to be defined with respect to the functions one level against another.

Plus, some other financial expenditures, correspondence requirements, and obligations.

  1. THE PRINCIPLE OF LAND MASS AND TERRAIN

Also, this principle of revenue sharing was introduced in a bid to correct the imbalance in the endowments of the state. Of course, the equality of assets doesn’t necessarily means equality in the development opportunities uses.

Thus, the principle of landmass terrain seeks to outline some major measures of succor for the state with fewer endowment factors in terms of social development.

  1. MINIMUM NATIONAL STANDARD

While sharing revenue between the tiers of government, the National standards in some major sectors like Education, Health, Agriculture, and host of others must be considered.

  1. THE PRINCIPLE OF EVEN DEVELOPMENT

In a bid to determine how the revenue should be allocated, the principle of even development was also applied in other to ensure that development is evenly spread across all the federation units.

This is important in other not to concentrate development in some selected areas. Thus, the principle prevents imbalances within the nation.

  1. EQUALITY OF STATE

There is no doubt stating the fact that all States are created equally, as such they all must be handled equally. The minimum unit of responsibilities is believed to be the same in every state regardless of the size and capacity. Hence, equality needed to be employed in distributing wealth.

  1. INDEPENDENT REVENUE

Similarly, this principle of allocating revenue states that each tier of government is capable of generating revenue for themselves. Hence, they are all expected to keep some part of the revenue for their own use and purpose.

  1. THE PRINCIPLE OF GENERAL ECOLOGY

The state of ecological problems in some parts of the country needs attention and as such, this principle sees this aspect. While sharing revenue, some of the states that are overwhelmed by the presence of these ecological problems need extra resources than the other.

In with the above, it is very imperative that those states being disturbed by these ecological problems are enhance and enrich in battling them.

Conclusion

The issue of revenue sharing will continue to be an issue that generates reactions from the stakeholders in the various state of the country.

However, the above-explained ways are the formula for sharing revenue allocation in Nigeria.

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