INTERGOVERNMENTAL FISCAL RELATIONS: THE NIGERIAN E XPERIENCE +

BY

AKPAN H. EKPO++ UNIVERSITY OF UYO UYO, AKW A IBOM STATE NIGERIA

Paper presented at the 10 Year Annivers ary of the Financial and Fiscal Commission of South Africa, Capetow n Inter national Conv ention Centre, Capeto n, South Afric a, 10 12 August, 2004. w

th

++

Author is Professor of Economics and Vice-Chancellor. University of Uyo, Uyo, Nigeria.

Tel: 234-85-201111 Email: ahekpo@skannet.com Web: www.A kpanHEkpo.com

1.

INTRODUCTION Fed era tion implies the existence in one country of more t han one

level of gov ernment, ea ch with different exp endit ure responsibilities and taxing p ow ers. In the Nigeria cont ext, this consists of a Federal gov ernment, 36 stat es, Federal Capital T errit ory a nd 774 Local Gov ernment s. Am ong the different lev els of government, fiscal arrangem ent s must be w orked out prop erly to ensure fisca l ba lance in the cont ext of macroeconomic sta bility. The fisca l arrangement

among the different tiers of government in a fed eral structure is oft en referred t o a s fiscal federalism; in other typ es of political structure it is known as int ergovernmenta l fiscal relations. Sometimes, bot h term s a re used int erchangeably. Conceptually, fiscal operations of any econom y can be v iew ed from tw o ext rem e forms of the public sector. O n one ha nd, there exists a highly d ecentralized fiscal syst em in which the gov ernment at t he cent er ha s no economic responsibilities. The other t iers of gov ernment performs v irtually all economic functions. The other extrem e is a ca se of t otal centra lizat ion where the central gov ernment ta kes t otal resp onsibility for a ll economic act iv ities of the public sector and therefore no other t iers of governm ent p art icipat e in the economic life of the nation. In pract ice, there exist s some degree of d ecent ralization in a ll econom ies.

3 Decentralization refer s to the portion of total rev en ue collected and expenditur es allocated to both S tate and Local governments. The degree of

decentralization is the extent of independent decision-m akin g by the vario us arms of the governm ent in the provision of social and econom ic services. It connotes the degr ee of autonomy of S tate an d Local governments in carry ing out various economic tasks. Niger ia s fiscal federalism has em anated from historical, economic, political, geo gr aphical, cult ural and social factors. In all of these, fiscal arran gem ents remain a controversial issue since 1946. Therefore, there ex ist unresolved issues on this matter. When the country was un der military rule, it was tho ught that type of governance exacerbated the fiscal arrangements among the three levels of government. During military rule, the feder al structure was on ly on paper wh ile the government was unitary. The int roduct ion of a democratic exp eriment in 1999 re-echoed the problem s of intergovernm ental fiscal arrangement am ong t he dif ferent levels of gov ernment . The issues of rev enue allocation and the sha ring form ula have generat ed such int ense d ebate that led to the demand of a nat ional conference. It was during this period that the resource cont rol phenom ena rose t o an unp reced ent ed

dim ension such that the struggle for polit ic al p ow er become the fight for resource control. Hence, the d emocratic exp eriment has creat ed new problems; the interference by t he ex ecutiv e a rm of gov ernment on t he functions of the National Rev enue Mobilization and Fiscal Comm ission (NRMFC) on the appropriat e revenue- sharing formula among the d ifferent levels of gov ernment, the debat e rega rding t he

4 correct int erpretat ion of the section of the 1999 Const itution affecting the deriv ation principle, among others hav e posed challenges for Nigeria s fisca l federalism. The paper exam in es intergovernm ental fiscal relations in Nigeria focusing on its ev olut io n and challenges. S ection 2 of the pap er examines the evolution of intergovernm ental relations in t he count ry. Section 3 discusses the p rin ciples of fiscal fed eralism . In section 4, t he cha llenges a re analyzed while sect ion 5 concludes the p ap er. 2.

EVO LUTION OF NIGERIAS FISCAL FEDERALISM*

The evolution of fiscal federalism in Nigeria d eriv es from

economic, p olit ical/const itutional, social a nd cultural develop ments which have influenced the nature and character of int er-

gov ernmental fiscal relations. As Nigeria progressed from a unitary t o a fed era l type of governm ent t he form of gov ernment became more and m ore d ecentraliz ed ; there were changes in fiscal arrangements. In examining the history of the count rys fiscal federalism, w e divide the economy int o three broa d time fra mes: (1) The pre-independence p eriod; (2) T he post- ind epend ence period; and (3) The democratic exp eriment period. The ev olution of Nigerias fiscal fed erali sm is summ arized in Table A1 in the appendix.

Pre-Independence Period
Before the int roduction of a repub li can constitution in 1963, t he fiscal arrangements were influenced by political and const itut ional fact ors. S ev eral commissions were creat ed t o renew existing fiscal For a

arrangem ent s and ma ke ap propriat e recommendations.

detailed a nalysis of these commissions see (Ekpo and Nd ebbio, 1996; Ekp o and Ub okudom, 2002; Nigerian Economic Societ y, 1999).
+ This

section dr aw s heavily from (Ek po and Ndebbio, 1996)

The Phillipson Commission

Under the 1946 Constitut ion and following t he establishment of Regional Assemblies in the then West ern and Ea stern Regions, a s w ell as a Northern Regiona l Council in the Northern Region, it was necessa ry to giv e some financial responsibil ities to these new bod ies.

Consequently, the financial secreta ry t o the Nigeria n gov ernment, Sydney Phill ip son, w as appointed sole commissioner charged with the resp onsibility of p reparing financial arrangement s under the new constitution. T he Phillipson commission, a s it w as later known, w as

mandated t o study comp rehensively and m ake recom mendat ions regarding the p roblem s of the administ rativ e and financia l procedure to b e adopt ed und er the new constitution (Phillipson, 1946, p.1). T he commission at tempt ed t o resolv e three problems, namely: (1) t he crit eria to be used in d eclaring rev enue as regiona l revenue; (2) how to det ermine the size of the grant s from the central rev enue; and (3) t he

6 form ula for allocat ing grants among the regions. As regard s t he first problem, the commission utilized two criteria: (a ) the rev enue in question must b e d eriv ed within the region and locally collect ed b y t he regiona l aut horities, and (b) the revenue must be free from national or significant polic y quest ions. Direct tax es, rev enue from licences, mining rents, fees of court s a nd offices, rent from government prop erty, and earnings from governm ent d epartments met the two crit eria. The second problem had a constitut ional solution. Under t he constitution t he central gov ernment had complet e authority to det ermine how much t o prov ide as grant s t o t he regions. H ow ev er, t he onerous ta sk faced by the com mission w as how to deriv e a formula for dist ributing such gra nts among the regions. The comm is sion

consid ered two princip les, (a) deriv ation and (b ) even p rogress or ev en dev elopm ent . It recommend ed that the sharing of the grants be

sha red solely on the p rinciple of deriv ation. The shares were as follows: East , 24%, West , 30%; and North 46%. The a doption of the principle of derivation in sha rin g revenue among the regions in Nigeria sta rted w ith the implementat ion of t he Phillipson Comm is sions recommendations. The derivation p rin ciple has since b een a thorny issue in Nigerias int ergov ernmental fisca l relat ion (Aded eji, 1969; Phillips, 1971; Teriba , 1966).

The Hicks-Phillipson Commission

Following t he dissatisfa ction with the rev enue allocation syst em und er the Phillip son Commission and the d ecision to transfer

edu cat ional grant s-in-aid from the cent ral t o the regional est imat es, a

7 new commission know n as the Hicks-Phillip son Commission (HPC) w as appointed in June 1950. The terms of reference of the HPC included: (1) To carry out an exp ert a nd ind ep endent enquiry in consultation w ith all parties concerned, t o submit proposals t o the gov ernor-in-council for division of revenue over a period of fiv e yea rs b etw een t he three regions and cent ral Nigerian services in order to a chieve in that time a p rogressiv ely more equitab le div ision of revenue among the three separat e regions and the center. (2) To d et ermine w hether any region ha d been

unfairly treat ed in past years; if t his was prov en, then t hat region would be all owed a block grant to comp ensat e for grant s lost in past years. In allocating revenue, t he comm ission ad opt ed t he following crit eria: libert y, justice, fraternit y and efficiency. It recomm ended four principles corresponding to these criteria. rev enue, d eriv ation, need and They w ere independent interest . Regarding

nat ional

independ ent revenue, four conditions were postulat ed for v iewing rev enue as regional. The revenue must be localiz ed within the region, stab le in yield, inexpensiv e t o administer and free from considerat ions of nat ional interest and p olicy. H ence, ind ep end ent revenues t o t he regions w ere simila r t o rev enues v iewed regional by the Phillipson Comm ission except that the regions w ere given p owers t o imp ose sales taxes on pet rol and also t o impose entertainment taxes and stamp duties. The HPC ap plied the other three principles t o the a llocation of non- declared revenue. It app ortioned 50% of t obacco tax on t he

8 principle of d erivation; based capita l grants on the principle of need; and transferred to the fed eral b ud get police and ed ucation. Nat ive A uthority Police received 50% national interest . Furthermore, the HPC recomm ended that a one-time grant of 4 million b e paid to the Northern Region as comp ensat ion for its dep riv ation, arguing that the North was und er- capita lized as The

compa red to other regions.

Scholars have criticized the HPC for

fom enting int er-regional conflict s and m isundersta nding (T errib a, 1996, p.366).

The Louis-Chick Commission

As the nat ionalist st ruggle p ersist ed, two const itut ional

conferences were held, the first in August 1953, a nd the second in January and February of 1954. The conference crea ted the Louis-

Chick Commission (LCC). Its t erms of reference included: (1) t o assess the cost of central serv ices and those of the regions; (2) to recommend how best rev enue should b e collect ed and distribut ed having regard to t he need to prov ide the center and the regions and adequate mea sure of fiscal aut onomy and the importance of a pplying t he principle of derivation to the fullest d egree compa tible w ith meeting the reasonable need s of the cent er and the regio ns; and (3) to examine the financial ram ifications of the southern part of the Cameroons b ecom ing a separate region.

9 The commissions rep ort w as accepted by government and becam e operational in O ct ober 1954. T he rep ort provided that: 1 The federal governm ent should retain the rev enue from the company incom e tax and 50% of the duties on exports,

following:

tobacco, ex cise, imports (except those on m ot or spirit and t obacco). 2 50% of import duties except those on toba cco and mot or sp irits

should be shared thus: 40% for the West; 30% for the North; 29% for t he East ; a nd 1% for the Southern Cameroons. 3. Regions should collect and ret ain rev enue from personal income

tax, produce sales tax, license and service feeds, int erest on loans and earnings on surp lus funds inv est ed, rev enue from regional d epa rtments, etc. 4. Rev enue from t he following sources should b e sha red among t he

regions in accorda nce w ith regiona l consumptions: 50% of tobacco, exp ort and excise duties; 100% of the duty on motor spirit, all mining rents and royalties; and fees from sma ll craft li cences. P ersona l income tax rev enues collected b y the fed eral government from Africans were ret urned to the regions where the Africans who paid the tax were resident.

The Raism an-Tress Commission

The rev enue allocation commission of Sir Louis Chick w as found wanting on three ground s: in sufficient ind ep end ent revenues t o the

regions, the ut ilization of the p rinciple of deriv ation in rev enue all ocation, and the reje ction of t he principles of need and nat ional

10 interest in rev enue allocation. As a result of these shortcomings, t he

1957 constit utional conference inaugurated another fiscal rev enue rev iew commission in 1958 under the chairma nship of Sir Jeremy Raisman. Though d et ails of the commissions assignm ent a re in

(Raisman T ress, 1958), we present highlights of it s t erms of reference. The Ra isman-Tress Comm ission (RTC) was required to examine the div ision of p ower t o levy taxes in the Fed eration of Nigeeria and t he syst em of allocation of the rev enue thereby d eriv ed in the light of: (1) exp erience of the system to date; (2) the allocation of funct ions between the gov ernments in the federat ion as a greed at t he conference; (3) the d esirability of ensuring that the maxim um possib le proport ion of the income of regional gov ernments should be w ithin the exclusiv e power of those governm ent s to levy and collect , taking into account consid era tion of nat ional and inteer-regiona l p olicy; (4) as regards it em 3, the specia l problem s in t he are of indirect taxation given the position of Lagos as a fed eral t errit ory; (5) in so far a s the independ ent revenues that can b e secured for the v arious

gov ernments are insufficient t o p rov ide not only for their immediate needs but also for a reasonable d egree of expansion, and b earing in mind the federa l gov ernments own furt her needs, the desirab ility of all ocating further federal revenue in a ccordance with such

arrangem ent s a s w ill b est serve the ov erall int erest of the federation as a w hole.

11 It is not eworthy that t he commission introduced tax es on partnerships, clubs, t rusts and other unincorp orated associations to accrue t o regiona l gov ernment jurisdictions. It contend ed that t he

fed era l government should be financially strong in order for it to av oid insolvency, and b e able to p rovide gra nts to needy regions and serv ices of nat ional interest . The comm ission ad opt ed four crit eria in all ocating revenue in a dist ributab le pool account , which it creat ed. These crit eria w ere: balanced d ev elopm ent, cont inuity in regional

gov ernment services, maint enance of minimum resp onsibilit ie s and pop ulation. The RTC div ided each type of revenue int o three pa rts to be paid t o states of origin, federal government and the distribut able p ool account. These includ ed: under stat e of origin, 50% of mining rents and roya lties a nd imp ort s duties; for the dist ribut able account, 30% of mining rents, royalties a s w ell as 40% of import dut ies. The dist ribution of the dist ribut able p ool account was based on 40% for t he North; 31% for the West; 24% for the East; and 5% for t he Sout hern Cameroons. It is interest ing t o note that the dist ributable pool account was used a ft er ind epend ence to share some federa llycollect ed rev enue am ong t he regions of the fed eration. In addition, the comm ission recommended the format ion of a fiscal commission to rev iew perio dically the revenue from minin g rent s and roya lties a s w ell as the size, comp osition and distribution of the distributable p ool account. The fiscal commission w as required to consult with the

12 regiona l gov ernment s. This recommendation seemed t o have surviv ed given the freq uent rev iew of rev enue allocat io n w ithin the economy. From the above discussion, it app ears clear that ea ch

commission w as concerned with t he efficient prov ision of public goods, and the d ist ribution of av ailable revenue. New fiscal commissions were appointed on the basis of const itut io nal changes. Though not explicit, there was some evidence of power st ruggle between the regions each att empt ing to secure benefit s for having important natural resource. This phenom enon is imp licit in the debat e over the d eriv ation principle.

2.2

The Post- Independen ce Peri od

1) This p eriod experienced significant economic, social and political cha nges, including a n almost three-year civ il w ar (1967- 1970) which affect ed gov ernment expenditures and rev enue patterns. 2) The form of gov ernment was further d ecent ralized in 1967 by the creat ion of 12 stat es out of the erstw hile four regions. 3) In 1976, 19 stat es were creat ed and local governments became officially known as the thir d tier of gov ernment. 4) Two new

stat es (Akwa Ib om and Kat sina ) w ere created in 1987, thereby bringing the number of states t o 21 excluding the Fed era l Cap ital Territory (Abuja), which received full status and thus was entitled to the allocation of federal funds. The number increased to 36 stat es in 1996. 5) O f significance during the p eriod was t he

freq uency and duration of m ilitary rule. The military t ook ov er t he

13 reigns of power and held them for almost 13 yea rs before a civilian administration was installed in Oct ob er, 1979. 6) In 1984, the milit ary once a gain seized pow er from the civ ilians and three military regim es have ex isted since t hen: the Buhari regime, t he Babangid a regime and t he Abacha regime. 7) T he milita ry rule

was chara cterized by the promulgation of d ecrees a ffecting t he count rys fiscal operations.
A m ajor e conom ic feat ure of the period w as the ascendancy of the petrole um sector as the major fo reign exchange earner. The w indfall profit from petroleum beginning in 1 974 and t he dependence of t he eco nomy on oil revenues had implicatio ns o n fiscal v ariables. For example, as a result of the huge fo reign exchange earnings, government em barked on various no nviable project s and be cam e actively invo lved in virtually all se ctors of the eco nom y. Almost throughout the post -indepe ndence period Nigeria has bee n in a situation of e co nomic crisis. Be ginning in 1979/80 , the e co nom y entered a recessionary phase. T he prolonged high rates of inflation and unem ployment coupled w ith declin ing productivity confirmed t he existence of stagflation in the eco nomy. Consequently, v arious stabilizatio n and adjustment packages aimed at reversing the cris is w ere introduce d from 1984. The economy finally had to settle for a full-blow n IM F type of struct ural adjustment in 19 86. These stabiliz atio n and adjustment packages have implicatio ns for t he co untrys fiscal operatio ns. M ore concretely, t he issues highlighted above influe nced positive ly or negative ly the evolutio n of fiscal fe deralism during the postindepe ndence pe rio d in Nigeria.

14

The Binns Commission of 1964

Following the introduction of a republican constitution in 1963, the Binns Rev enue Commission was appoint ed in 1964 t o rev iew intergov ernment fiscal relations. Its t erms of reference included an

examination of t he appropriat eness, in the prevailing circumstances of Nigeria , of: (a) the formula for the allocation of the proceeds of mining rents and royalties laid d ow n in sect ion 140 of the constit ution of t he fed erat ion; and (b) t he formula for the dist ribution of funds in t he dist ributab le pool account laid down in section 141 of the constitution of the fed eration (Binn, 1964, pp . 5-6). The commission rejected the distribution of funds based on principles of derivation and need, and utiliz ed the principles of regional financial comparability, of continuity in gov ernment The services and

maint enance

min imum

resp onsibilities.

comm is sion

recommend ed t hat 35% of federally collected rev enue from imp ort duties, mining rent s a nd royalties be paid int o the dist ributable pools account a nd distributed am ong the regions on the basis of North, 42%, East , 30%; 20%; and Mid-West , 8%. Aft er the military int erv ention in 1966, and the creation of 12 states in 1967, the shares of the Northern Region were divided among the six northern st ates on the basis of population and equalit y of stat es. The milita ry gov ernment carried out t he

cha nges by promulgating, as an int erim m ea sure, Decree No. 15 of 1967. The decree stip ulated how the fund s in the dist rib utable p ool amount w ere to be shared among the 12 stat es. It took cognizance of

15 the regional blocks and segmented the funds in the account that had accrued to those regions among the new stat es. The princip le

adopted in div iding a regions share among the stat es emanating thereof w as ad hoc and unsatisfactory. gov ernment appoint ed an Int erim As a result, t he milita ry Allocation Rev iew

Rev enue

Comm ittee in 1966, chaired by Chief I.O. Dina.

Interim Revenue Allocation Review Committee

This committee w as the first such b ody consisting only of Nigeria ns. In the light of the creation of 12 st ates, charged with t he functions formerly exercised by t he regiona l gov ernment s, t he

committee w as mandat ed t o look int o and suggest any change in t he existing system of revenue allocation a s a w hole. T his includ ed all forms of rev enue going to ea ch government b esides and including t he dist ributab le pool a ccount. The com mittee w as also t o suggest new rev enue sources for both the federal and sta te government s. In carrying out its mandat e the comm ittee proposed possib le principles that could serv e as crit eria for rev enue allocation, including four of those used in earli er allocation syst em s. T he princip les were basic need, minimum national st andard , populat ion, tax effort, financial prud ence, fisca l adequacy, ba lanced development,

independ ent rev enue, deriv ation a nd nationa l int erest. The a llocation of rev enue between the fed eral a nd the stat e gov ernment s w as div ided int o independ ent revenue a nd sha red revenue. T he

independ ent rev enue to the federal gov ernment comprised principa lly

16 compa ny (including oil compa nies) income tax, w hile t hat of the st ate gov ernments consisted of p ersonal income tax, licenses, fees et c. T he sha red revenue consisted of revenue from ex cise duty, import duty, exp ort dut y, minin g rent and royalties from off-shore operations, and roya lties from in- shore op era tions in respect of oil a nd solid minerals. In addition, the committee recommend ed that the shared rev enue should be allo cat ed am ong the federal governm ent and three accounts nam ely: the st ates joint account t o rep lace t he dist ributab le pool account, t he special gra nts a ccount and t he derivation a ccount. T he committ ee a lso worked out the det ails for sha ring the stat es joint account. Table 1: Allocati on of shar ed revenues (in %) Account Federal State deriv . State joint Spec ial gr ants Total ED 60 30 10 100
1

IM 50 50 100

ED 15 10 70 5 100

MRI 15 10 70 5 1001

MRRO 60 30 10 100

Source: The Re port o n t he Interim Reve nue Allocatio n Com m. (1969, p.77). Notes: 1. excise duty, 2. impo rt duty; 3. export duty ; 4. m ining royalty (inshore) ; 5. m ining rent and royalty (offsho re).

In term s of d eriv ation, the committee argued that the rent from inshore oil exploration should be assigned in full to the stat e from which the oil was extra ct ed, while 10% of the royalties should be shared on derivation. T he formula for the a llocation of shared revenue is giv en below:

17 It must b e not ed that t his first indigenous revenue a llocation committee add ressed v ital fiscal issues in its recommendations. examp le, it called for t he cent ralizat ion For

of certain functions,

overha uling the tax administrat ion throughout the count ry a s w ell as uniformity in personal incom e taxes, mea sures that w ould increase t ax rev enue to federal and state gov ernment s, and the intensification of fed era l gov ernment sp end in g on public goods that hav e the

cha racterist ics of spil lovers in their consumption. Howev er, the milita ry gov ernment reject ed the report of Chief Dinas committ ee and ena ct ed Decree 13 of 1970. T his decree modified the d istribution of the dist rib utable pool account, and the rev enue paid int o the account was distribut ed am ong the states on the basis of 50% on equality of stat es and 50% on populat ion. Furtherm ore, a n off- shore oil rev enues decree w as promulgated in 1971 it amended S ection 140(6) of t he constitution, which provided that t he continental shelf of a stat e is part of that stat e. The 1971 am endment stated that (a) the ownership of and tit le to t he t erritorial waters and the continental shelf shall vest in the federal military government; and (b) all royalties, rents and other rev enues derived from or relating t o the exploration, prospect ing or searching for or the minin g or w orking of p etroleum (a s d efined in the P et roleum Decree of 1969) in the t errit oria l w aters and the contin ental shelf shall accrue to the federal military governm ent.

18 The implicat ion of the off-shore w as that all the rev enues from off- shore operations a ccrued t o the fed era l gov ernment, while those from in-shore operat ions were alloca ted as per the existing formula: 45% on deriv ation; 50% to the distributable p ool account; and 5% t o t he fed era l government. In 1975, further cha nges were effected in the revenue a llocation syst em. The dist rib utable p ool account w as enlarged and rev enues cred it ed o the account included 35% of imp ort duties other than mot or fuels, t obacco, wine, potable spirits and beer; 100% of the import duty on motor fuels a nd t obacco; 50% of excise duty on any comm od ity; 100% of the exp ort dut y (if levied) on produce, hides and skins; 80% of mining rents and royalt ie s from inshore operations; and 100% of mining rents and royalt ies from off-shore operations. The creation of 19 stat es in 1976 and the dema nd by the constitution drafting committ ee for a new revenue allocat io n formula inclusion in the p roposed new constitution led to the estab li shment of The T echnical Committ ee on Rev enue Allocation in 1977 und er the cha irm anship of Professor Ojetunji Aboyad e.

The 1977 Technical Committee on Revenue Allocation

The terms of reference of the committee w ere t o take into consid eration t he need t o ensure that ea ch governm ent of the fed erat ion had adeq uate revenue t o enable it to d ischarge its resp onsibilities, w ith regard t o p op ulat ion, equality of st atus am ong t he stat es, derivation, geographica l peculia rit ies, ev en dev elopm ent , the

19 nationa l interest and any ot her fa ctor b earing on the problem. The committee w as t o ana lyz e the exist in g revenue a llocation formula w ith a v iew to determining it s ad eq ua cy in the fa ct ors mentioned above and representations from t he federal government and the st ate gov ernments and other interest ed pa rties. Based on those findings, the committee was cha rged with recommend ing new prop osals as necessary for the allocat ion of rev enue among federal, state a s w ell as the local gov ernments, and also among state, and the local gov ernments and ma kin g w hatev er recom mendat ions were deemed necessary for the effect ive collection and distribution of fed eral and stat e revenues. The committ ee reject ed the form er principles used in previous all ocation systems. On the other hand, it recommended the following five criteria in allocating funds in the states joint account : equa lity of access to development opportunit ie s, nationa l m inimum st anda rds for nationa l integra tion, absorpt ive capa cit y, ind epend ent revenue, and minimum tax effort and fiscal efficiency. The follow ing w eight s were assigned t o ea ch of the ab ov e crit eria respectively: 0.25, 0.22, 0.20, 0.18 and 0.15. T he committ ee maintained that t he allocation crit eria should be a pplied t o the in cremental changes in the stat e joint account and not to the total absolute am ount so as to ensure that each st ate gov ernment w ould be able to maintain minimum continuity of serv ices in ca rrying out it s duties. The same formula was suggest ed for local gov ernments.

20 The allocation formula recommended by the commit tee w as: 57% for the fed era l governm ent; 30% for st ates joint account ; 10% for loca l gov ernment; and 3% for sp ecial gra nts a ccount. The federal

gov ernment in accept ing the committ ees recommendations modified the formula t o read thus: 60% for t he federa l government; no cha nge in stat e and local government shares, and no a llocat ion for the sp ecial grants account. The other significant recommendations of the committee, accept ed by governm ent, included: (1) the concurrent subjects in t he new constitution would be similar to those of t he 1963 constit ution; (2) the local gov ernment s would b e entrenched in the new constitution as the third tier of governm ent ; (3) all mineral right s w ould b e v est ed in public ow nership; (4) the tiers of gov ernment would be allocat ed t ax pow ers a nd funct ions; a nd (5) all revenue collect ed by the federal gov ernment (apart from personal incom e tax form the armed forces, external a ffairs officers and the new fed eral capital territ ory) would be sha red among t he fed eral, stat es and local gov ernments. The committ ees report came under severe crit icism especia l y as regard s the weight s atta ched to the fiv e criteria and t he recommendation that state governm ents should administ er com pany income tax. It w as feared that the latt er would introduce

complications w hile the former (w eight s) w ere arbitrary. An excellent appraisal and critique of the various fisca l com mission report s is in Udueb o (1982).

21

The Okigbo Commission

Consequently, a new rev enue a llocation commission w as

established in Nov ember 1979, und er the chairma nship of Dr. Pius Okigbo. This com mission, otherwise know n as the Presid ent ial

Comm ission on Rev enue Alloca tion or the O kigbo Commissio n w as set in mot ion tw o months aft er a new civilia n ad ministration assumed pow er. Desp ite the m inority views expressed by som e m embers of t he commission, gov ernment modified and accept ed its report. How ev er, on 2 October 1981 the Sup reme Court of Nigeria declared the recomm endations of t he O kigbo Commission a s invalid, null and v oid, and of no effect whatsoev er.

The 1981 Revenue Act

In 1981, a new revenue a ct was passed by P arliam ent. It

becam e operational from Ja nuary 1982. Under t he new act , federa l y collect ed rev enues were dist ributed as follows: Fed era l government State gov ernment Local gov ernment 55% 35% 10%

The 35% st atutory share of the stat e gov ernments was t o b e distribut ed thus: (1) 30.5% t o b e shared am ong the stat es on t he ba sis of: (a) (b) (c) Minimum responsibility of gov ernment (eq uality of stat es) Populat io n Social dev elopm ent as indicat ed by primary school enrolment, of which 11.5% is based 40% 40%

22 on direct primary school enrolm ent ; and 3.75% on inverse enrolment) Internal revenue effort measured a s t he ratio of t ota l internal rev enue t o t ota l recurrent exp enditure -

(d)

15% 5%

(2)

3.5% for the b enefit of the mineral producing stat es t o b e shared on t he ba sis of d erivation, of w hich 2% w ill b e shared direct ly on derivation and 1.5% w ill be adm inistered b y the federal gov ernment for the development of the min eral p roducing areas.

(3)

1% will be allocated t he federa l fund for ecological p roblems. The 1981 Rev enue Act remained in force unt il Decemb er 1989.

The act was the longest-standing revenue formula in the hist ory of Nigeria s fiscal federalism. Ev en the two military governments, aft er the civilian rule, ignored the sev era l criticism s levied against the a ct. How ev er, in 1988, T he National Revenue M ob iliz ation, Allocation and Fiscal Commission was inaugura ted under the chairmanship of General T. Danjuma. In Decemb er 1989, gov ernment modified and a ccept ed the recommend ations of t he Danjuma Com mission.

The Danjuma C ommission

Among ot her t hings, it is noteworthy that governm ent a greed with the commission that there should be no dichot omy b etw een onshore a nd off-shore oil p roduction for the purp ose of revenue sharing and for the d ev elopm ent of m ineral producing area s. The imp ortant asp ects of the revenue allocation formula of the Danjuma Comm is sion accept ed by government a re sum mariz ed b elow:

23

Commi ssi ons Recommen dation Ver tical all ocation: Fed era l government State gov ernment s Local gov ernments Specia l funds 47% 30% 15% 8% 100% Special Funds: Fed era l t errit ory Stabil ization Sav ings Derivation Dev elopm ent of oil MP A Dev elopm ent of non- oil M PA Genera l ecology 1.0% FA 0.5% FA 2.0% FA 2.0% MR 1.5% O MR 0.5% NOM R 0.5% 8.0% Horizon tal Allocati on: Equ ali ty of states Population Social dev. factor* Lan d mass an d terr ain Internal r ev. effor t

Governments approved 50% 30% 15% 5% 100% 1.0% 0.5% 1.0% 1.5% 1.0% 5.0%

40% 30% 10% 20% 100%

40% 30% 10% 10% 10% 100%

Notes: FA = Federal account MA = Mineral Ar eas OMR = Oil miner al producing areas NOMR = N on-oil miner al producing areas *includes edu cation (direct enrolmen t 8% ); inverse enrol ment (2% ) The above revenu e allocation for mul a except th at of l an d mass and terr ain took effect from December 1989.

24

2.3

THE DEMO CR AT IC EXPERIMEN T PERIOD In May 1999, the count ry replaced t he milita ry regime w ith a

dem ocratic gov ernment through the ballot b ox.

During this p eriod,

there exist cont rov ersies regarding the countrys fisca l operations. T he Fed era l G ov ernment was a ccused by oil prod ucing st ates for not honouring the derivation p rinciple as stated in t he 1999 Federal Constitut ion. T he Fed eral Gov ernment int roduced the on- off shore

dic hotomy im plying that oil found in the sea cannot b e ascrib ed t o the adjoin ing sta te. The on- off shore controv ersy result ed in states in the Niger Delta calling for a great er control of their resources (p et roleum); t his led to the st ruggle for resource cont rol culminating in som e st at es suing t he Fed era l Gov ernment. The matt er end ed in the Supreme Court . It should be not ed t hat t he National Revenue Mobilization, Allocation and Fiscal Comm ission (NRM AFC) w hich w as ina ugurat ed in 1990 b ecame effect iv e during this p eriod. T he NRM AFC reject ed on sev eral occasions the int erference of the Presid ent and t he Federal Ministry of Finance on the formula for revenue-sharing. T he NRM AFC insists on the proper int erpretat ion of t he Constitut ion. For exa mple, in January 2004, the Federal M inistry of Finance in a letter to t he Comm ission gav e the Federal Governm ent a share of 54.68% and a grant of 2% to the St at es. The NRM AFC disa greed with the Ministry of its

25 non- compliance w ith the Provision of S ection 164(1) of the 1999 Constitut ion. To table below summa riz es the changes and

recommendations in the vertical a l ocation formula from May 1999 to January 2004. Changes and Recommen dations in th e Verti cal Allocation For mula: 1999 2004

1. Federal Government Federal government General Ecol ogy Fed. Cap. Territory Stabilizati on Account Dev. of Natural Resources Deri vation (Ecol ogy) 2. State Government s 3 Local Governments Total

*1 *2 *3 Revenue all ocati on Revenue Allocation Ministry of Finance of Order 2002 July Order 2002 All ocati on Formul a beginning May January 2004 1999 ** (i) 52.68?% ** (i) 56% **(i)54. 68% 48.5% 48.5% 2.0% 1.0% 1.0% 1.5% .725% 3.0% 3.05% (ii) (iii) 24.0% 20. 0% 100% (ii) 1.46% 24.72% (iii) 20.60% 100% (ii) 26.72% 20.60% 100%

Source: NRM AFC, Abuja. Not es: * 1 Consequent up on the decision of the Court in t he Resource Control Suit t he President inv oked the provision of Section 315 t o bring t he prov ision of Cap. 16 int o conformity with t he p rov isions of the constitut ion. ** The Fed eral G ov ernment allocated 48.5% for itself and dist rib ut ed the balance of 7.5% on General Ecology and FCT. *2 P rop osal Re-Modificat ion Ord er by the Presid ent w hich the NRMAFC

26 disa greed with on the ground that t he earlier modificat ion Ord er was the Act of t he National Assembly by v irtue of S.315 and therefore any am endm ent t o it must follow due legislativ e p rocess. ** The Federal Government allocat ed 48.5% to it self. The 2% for

Genera l Ecologica l prob le ms is t o be shared by all t hree tiers of gov ernment on the ba sis of the existing form ula. * 3 Modificat ion of the sharing formula through a lett er of 15t h Janua ry, 2004 from the H onourable M inister of Finance, authorizing 2% Grant to the stat es which the NRM AFC disa greed b ecause of its noncompliance w ith the provision of section 164(1) Constitut ion. It is clear from the ab ov e that Nigerias fisca l federalism is still metamorp hosing; the NRM AFC was unable t o disagree w ith previous military governments. of the 1999

3. PRINCIPLES OF FISCAL FEDERALISM

The principles that guide the implementation of

intergovernm ental fiscal relat ions include: (i) The Princip le of Div ersit y: The federal syst em must hav e the ability to a ccommodat e a large v ariety of d iversities. H ence, the fiscal syst em must provide scop e for variet y and differences t o sup ply nationa l, regional and local public good s. (ii) The P rinciple of Equivalence: Ba sed on t he geograp hical

incidence of different public good s, allocat ive efficiency requires the equalization of loca tiona l adv antages a rising from

27 interjurisdictional differences w ith a comb inat ion of taxes and public goods and serv ices. (iii) The Princip le of Cent raliz ed Stabilizat ion: T his requires the use of fiscal instrum ent s for achiev ing macroeconomic object iv es of growth, stabilizat ion and full employment at the national lev el. (iv) Correct ion of Sp illover Effect s: This ensures t hat int erjurisdict ional externalit ies b e correct ed by t he system. It refers to ext ernalities (positiv e and negativ e) experienced b y residents of different geo-political units; this requirement controls for what is oft en referred to a s cent ral city exploitat io n thesis. (v) Minimum Provision of Essential Public Goods and S ervices: This ensures that fiscal fed eralism guarant ees all citizens, irresp ective of where they reside, the minimum provision of certain basic public goods and serv ices. (vi) Principle of Fiscal Equalization: In ord er t o ensure minimum level of public goods and serv ices same d egree of fiscal equalization is required. end ow ment. (vii) The Efficiency Principle: This principle impli es that efficiency must be app li ed in the a llocation of resources. In addition, each level of gov ernment should maximiz e its int ernal rev enue earnings at minimum tax efforts. This is as a result of differences in resource

28 (viii) The Princip le of Derivation: The component unit s of a system should be able t o control some of it s own resources a s t hey desire. (ix) The P rinciple of Locational Neut rality: Interregional fiscal

dif ferences tend to influence locat iona l choices of indiv iduals and firms. Ba sed on different resource end owments, differences in tax capacit y and effort , some decree of locat ional

interference seems to be an inevitable cost of intergovernmental fiscal relations. Therefore, policy should focus on minimizing

dist ortions due t o some int erference. Hence, different ial tax es which creat e locat ional dist ort ions should b e av oid ed as much as p racticable (Agiob enebo, 1999, P.43) (X) The Principle of Centralized Redist ribution: This p rinciple stat es

that the redistribut ion function of fiscal p oli cy through progressive taxation and expendit ure p rogrammes should be centralized at the federal lev el. T his seems consistent with the principle of That is, if the red istributive funct ion is

locational m entalit y.

decent ralized, it can result in dist ortions in locational d ecision. It should be noted that the a bov e principles are not mutua l y consist ent. T hey are d ifficult to ap ply simultaneously . Therefore, tradeoffs are necessa ry in order t o av oid conflicts. There is no d oubt that the general p rinciples of fisca l federalism appeared t o have informed Nigerias att empt at intergovernmental fiscal relations. The different principles hav e been dictat ed by a

29 combination of historica l exp eriences, political, cultural and social fact ors (see T able A-1 in t he app endix). Aft er a lmost forty yea rs in search of a workable fiscal federalism, there still exist challenges which policy- makers must add ress. 4.

CHALLENGES
There are sev eral challenges torment ing intergovernmental fiscal

relations in Nigeria: 4.1 Non-Correspon den ce Probl em Ideally, each level of governm ent should be given adequate resources to allow it dis charge it s responsibilities. Because this is not possible, there is usually a lack of correspond ence betw een t he

spending responsibilities a nd the t ax p ow ers/revenue sources assigned to d ifferent levels of gov ernment. It is this incongruence tha t is oft en referred to a s the non- correspondence p roblem. In Nigeria, most of t he ma jor sources of revenue com e und er the jurisdiction of the Fed era l Government yet low er lev els of gov ernment are suppose t o generate int ernal revenue. There is, therefore, the need to resolve the imbalance between assigned functions and tax powers. 4.2 Fiscal Au tonomy and Indepen den ce The issue of relativ e fiscal a utonomy and independ ence of t he State and Local Governm ents in a true fed era l structure goes with t he corolla ry issue of the corresp ondence of gov ernmental funct ions and rev enue sources. Since the creation of t he tw elv e state st ructure in 1967, States and Local Gov ernments have been ex cessiv ely

30 dep endent on t he Federat ion Account. This d epend ence must be

reduced if the fed erating unit s a re to be free to pursue their own dev elopm ent al goals without being hampered by the unpredictab le fluct uations in t heir shares of t he Federation Account. It is imp ortant that revenue sources should b e re-allocated and ma de comp atib le with the fluct uations st ated for ea ch tier of gov ernment to enhance st eady a nd prop er funding of administ rat iv e and dev elopmental activities inst ead of the often experienced unexpect ed fina ncial constrictions at the two lower t iers of gov ernment. 4.3 Federati on Account and the Derivation Fun d It is imp ortant to define w hat const itut es the Federation Account - to which the v arious vertical revenue a llocation formulae have been applied and what should be d irect ly financed from it . Up t o 1990, t he amount accruing yearly t o the Federation Account w as still ov er 96% of tota lly federally collect ed rev enue; but since 1991, w hen it first dropped t o ab out 75% and nose-dived t o around 35% by 1997, it showed no sign of recov ery (O lowononi, 1999). It is, t herefore, clear that in such a situation, w hatev er the vertica l formula applicable, there must still b e a serious fiscal imb alance betw een the federal gov ernment and the tw o lower tiers of governm ent. It is crucial to

redress this revenue imbalance in the spirit of ba lanced t rue federalism. What app ears t o account for t his im balance is the assertion of the self- claim ed right by fed eral governm ent t o finance various first-line cha rges from the Fed eration Account before the application of t he

31 v ertica l formula. T hese first- lin e cha rges include funding for ext ernal debt serv ice, national priority project s, NNPC priorit y p rojects, Sp ecial reserve account, a nd ex cess p roceed s of crud e oil sales account, and in a ddit ion , the joint v enture ca sh ca lls a ccount. These deductions a re made from the proceeds of crude oil sales before t he derivation fund in the Federation Account is a rriv ed at, and a fter w hich further ded uct ions for specia l fund s and the funding of the Federa l Capital Territory a re mad e. It will seem more logica l, w ith the ex ception of joint v enture cash calls, that these v arious charges w hich are federal gov ernment obligations be financed solely from he federal

gov ernments revenue prop er, that is, from its sha re of the Federation Account or from it s rev enue from other sources. Therefore, in order t o det ermin e w hat const itut es t he derivation fund, resolv ing the issue of the Federat ion Account is crucial. Therea fter, the d eriv ation formula t o b e util iz ed ca n b e a rriv ed at . 4.4 Oil-Produci ng Areas and th e Deri vati on Princi pl e That crude oil p roduction has b een the m ost imp ortant economic activ ity in the Nigeria n economy since the ea rly 1970s is not sub ject to d ebate. Its im pa ct is not limited t o it s cont ributing a lmost 90% of Nigerias total foreign exchange earnings but a lso to the fact that t he nat ional bud gets are p redicat ed on t he expected annual production and price of crude oil. Thus, crude oil is t he prima ry engine for national economic grow th and development. It is, therefore, quite reasonable t o exp ect that the areas producing the nat io ns crude oil

32 would be very highly develop ed as compensation for what is taken away as well a s for t he dev astation on the land engend ered by t he exploration p rocess. There should hav e been d ev elopm ent of physical and social infra st ructures, human cap ital creation, and econom ic emp ow erment of t he genera l citiz enry in those areas. The Niger Delta area suffers nea r t otal neglect by both t he Fed era l gov ernment, whic h claims ow nership of the oil, and t he multinational companies, which actually exploits t he oil reserv es. It is a pict ure of w anton env ironmenta l d egradation of all t ypes land (despoliat ion of fa rmland s), w ater (dest ruction of fishing area s and sources of drinking water), and air (relea se of ma ny pollut ant s causing dis eases in huma ns, animals and plant s). The p eople in the Niger Delta who hithert o w ere able t o cat er for their need s a re now being confronted w ith povert y through loss of their means of liv elihood. The int erv ention of the fed era l gov ernment t hrough t he Niger Delta Dev elopment Comm ission (NNDC) seems t o b e a welcome dev elopm ent . However, the missing factor seems t o be the p rop er treatment of the d eriv ation princip le in a w ay that would enable t he State and Local Gov ernments of the oil-p roducing a rea s t o hand le their d evelopmental p roblems according to t heir ow n felt need s and priorities. The minim ization of the deriv ation fact or ov er the yea rs from the earlier 50% to 1% and now 13% , only as it a ffects crude oil is unjust and unfa ir when one consid ers t hat I gbeti Marble att ract 55% derivation and the Value Added Tax (VAT) still att racts 20% d eriv ation.

33 The challenge w ill be t o re- examine the issue of d erivation pa rticula rly in line with the now democratic experiment. 4.5 Intergovernmen tal Fiscal Rel ations an d th e Economy It is expect ed t hat fiscal d ecent ralization would st imulat e grow th and d evelopment . There is the need to ascertain w hether this has taken place in the country particula rly as large am ount of resources hav e been tra nsferred from t he cent er t o both St ate and Local Gov ernment s. 5. CONCLUSION We have examined the ev olution of int ergovernm ent al fiscal relations in Nigeria. It seems clear that p olit ical, social, and econom ic fact ors influenced the decent ralizat ion process. An analy sis of the

recommendations of the v arious fis cal Commissions did indicate t he problems of add ressing revenue allocation in Nigeria. We highlight ed som e of the cha l enges facing int ergovernmental fiscal relations in t he count ry; these includ ed fiscal aut onomy and ind ep endence, the Fed era tion Account, the Deriv ation Fund and Problems of the OilProducing Areas. A robust t reatm ent of these issues by p olicy-makers will result in a fa ir and just resolution of the prob lems confronting t he dif ferent t iers of gov ernment. There is no doubt t hat the principles of fiscal federalism impli citly or explicitly hav e guid ed the formulation a nd imp lementat ion of fiscal relationships among fiscal t he d ifferent tiers of smooth gov ernment. process; all

Intergovernm ental

relat ion is not a

34 stakeholders must be committ ed t o fine-tuning the process in the overall int erest of t he count ry.

35

REFERENCES
Agiobenebo, T. J. (1999) Assignment, Criteria a nd the Fiscal Constitut ion: An Ex cursion into T heory of Rationa l Fiscal Fed era lism in Fiscal Fed eralism A nd Nigerias Econom ic Dev elopm ent, Nigerian Econom ic S ociety (NES), Ibad an. Amnuw o, K. et al (1998) Fed eralism and P olitica l Restructuring in Nigeria , Ibad an: Spect rum Books. Ekp o, Akpan H. (1994) Fiscal Federalism; Nigerias Post-Ind ep end ence Experience, 1960-90, World Dev elopm ent, Vol.22, No.8 Ekp o, Akpan H. (1995) Int ergovernm ental Fisca l Relat ions in Nigeria: Issues and Experie nce Workshop, Johannesburg, S out h Africa, May 3-5, 1995. Ekp o, Akpan H . (1999) Fiscal Federalism a nd Local Gov ernment Finances in Nigeeria in NES, Ibid . Ekp o, Akpan H. a nd John Ndeb bio (1996) Fiscal O perat ions in a Dep ressed Econom y: Nigeria, 1960-90. Research Paper No. 44, AERC, Nairob i, K enya. Ekp o, Akp an H. (1999) P ublic Exp end iture and Economic Growth in a Pet roleum- Ba sed Economy: Nigeria, 1960-62 South African Journal of Economic and Managem ent Sciences, Septemb er, Vol. 2, No. pp .374-389. Ekp o, Akpan H . and Enamidem Ubok-Ud om (2003). I ssues in Fiscal Fed era lism and Rev enue Alloca tion in Nigeria. Future P ublishing Ibadan, for Univ ersity of Uyo. Emenuga , Chidozie (1993) Nigeria: In Search of Acceptab le Rev enue Allocation Form ula The National Question and Econom ic Dev elopm ent in Nigeria, Nigerian Economic Societ y (NES), Ibadan. Kayod e, M. O. (1993) T he Nat ional Question and Revenue Allocation: An Articulation of S om e of t he P roblems and Issues in NES , 1993, ibid . Mbanefoh, G.E. (1993) Unset tled Issues in Nigerian Fiscal Federalism and the Nationa l Question in NES, ibid . Prudhomme, R. (1995). The dangers of Decentraliz ation The World Research Observ er, Vol.10, No.2, August. Pp.201-220.

36

Ter-Minassian, T . (1997) Fiscal Federalism in Theory and Pra ct ice, Washington, D.C. IMF. Udueb o, M. A. (1992) Fisca l Fed era lism in Nigeria: Experience since 1967 and Proposals for the Fut ure Ph.D Thesis, Dev elop ment of Economics, Univ ersity of Lagos. World Bank (1995) Annual World Bank Conference on Development Economics, Washington D.C., World Bank

37

APPENDIX Table A 1: Summary of the evolution of revenue commissions and allocation form ula in Nigeria: Year/C ommission 1946 Phillip son Principles/Criteria and Allocation Formulas Based on derivation an d equal pro gr ess or equal dev elopment. Grants wer e solely on der ivation. East 24%, West 30% and the 46% Based on indepen dent reven ue, derivation need an d national interest. Sam e form ula as in 1946 except regions were empowered to im pose sales taxes on petrol, entertainm ent taxes an d stam p duties. Federal gov ernment to retain rev en ue from com pany income tax; and sales on the export, tobacco, excise; 50% of import duties (except on tobacco and motor spirits) to be shared thus: West 40%, North 30%; East 29% and So uthern Cam eroons 1%. Regions to collect and retain rev en ues from personal income tax. 50% of tobacco export and excise duties and 100% of the duty on petrol to be shared am ong the region s in accordance with regional con sum ption. Criteria: balanced development, com munity in regional government services, maintenance of minim um respon sibilities an d population. Div ided each reven ue into three parts: ( a) states of origin, (b) federal government, (c) distributable pool acco unt. For ( a) 50% of minin g rents and royalties an d import duties; for (b) 30% of mining rates, royalties an d import duties; for (c) 20% of mining rents and royalties an d 40% of import duties. Allocation from the pool acco unt: North 40%; West 31%; East 24%; and So uthern Cam eroon s 5%. 35% of federally co llected reven ue from import duties, mining rents and royalties to be p aid into the distributable pool acco unt and shared am on g states as follo ws: North 42%; East 30%; W est 30% and Midwest 8%. Principles: basic needs, minimum national stan dar ds, population, tax effort, financial prudence, fiscal adequacy, balanced developm ent, indepen dent revenue, derivation and national interest. Segmented reven ue into independent and shared; the latter to be allo cated bet ween the feder al government an d other acco unts, viz., states joint acco unt, special grants acco unt, and derivation acco unt. Excise duty: 60% feder al; 30% states joint acco unt; 10% special grants. Import duty: feder al 50%; states joint acco unt 50%. Export duty: 15% federal; 10%deriv ation; 70% states joint acco unt; 5% special grants. Minin g royalty (in shore): 15% federal; 10% derivation; 70% states joint account; 5% special grants. Mining rent an d royalty (off shore) ; 60% f ederal; 30% states

1950 Hick s-Phillip son

1954 Louis- Ch ick

1958 Raiseman-Trees

1964 Binn s

1966 Dina

38 joint account an d 10% sp ecial grants. Rejected Dina report. Reven ue distributed am ong the states on the basis of 50% equality of states; 50% on population. All off-shore reven ue accr ued to the federal gov ernm ent. In-shore revenue shard as follows: 45% on der ivation; 50% to the distributable pool acco unt an d 5% to the federal gov ernment. Am endment to Decree 13 of 1970 of im port duties except on motor fuels, tobacco, win e, potable spirits an d beer to the distributable pool acco unt; 100% of the import on m otor fuels and tobacco; 50% of the ex cise duty on any com modity; 100% of the export duty (if levied) on produce, hides and skin s; 80% of mining rents and royalties from in-shore oper ations and 100% of m inin g r ents an d royalties from off-shore oper ations, All of the above wer e to accr ue to the distributable pool acco unt. Criteria for state joint account: equality of access to dev elopment opportunities, m inimum stan dar ds for national integration, absorptive capacity, indep endent reven ue, minimum tax, and fiscal eff iciency. 50% for the federal government; 10% for local governments; 3% for special grants acco unt. Later to 60% an d abolished the special grants acco unt. Recom mendations declared n ull an d void by the Supreme Co urt of Nigeria. Rev en ues to be allocated thus: feder al governm ent 55%; state governments 35% ; local government 10%. 35% statutory share of states to be allocated as fo llows: 40% as equality of states or minimum responsibility of gov ernm ent; 40% on population; social development 15%, of which 11.5% is based on dir ect prim ary schoo l enrolment and 3.5% on inver se enrolm ent; 5% for internal reven ue effort; 3.5% for mineral producing states, of which 2% on the basis of der ivation and 21.5% administered by h e f ederal governm ent for the dev elopment of the m ineral producin g ar eas, 1% to the feder al fun d for ecolo gical pro blems. Vertical allocation: federal 50%; state gov ernments 30%; local governments 15%; sp ecial f un ds 5%. Hor izontal allocation : 40% for equality of states; 30% for population; 10% for social dev elopment factor, 8% direct enro lment and 2% for inver se enrolm ent; lan d m ass an d terrain 10% an d internal reven ue effort 10%. These wer e approved by the government. Vertical allocation: Federal 48.5%; S tate governm ents 24%; Local governments 20%; FCT1%; Gener al eco logy 2%, stabilization 0.5; Deriv ation (MR) 1%; OMPADEC 3%.

1970 Decr ee 13

1975

1977 Aboyade

1979 Okigbo Rev en ue Act of 1981

1989 Danjuma

1999 FMG

39

Table A - 2 Powers and Functions of the National Revenue Mobilization, Allocation and Fiscal Commission. a. Systematic design, and eff ective mobilization of all so urces of public sector reven ues; Periodic rev iew of the rev en ue allocation principles an d form ulae such that would m inimize short-term political pressure; Prescription an d application of reven ue allocation formulae after due approval by the Federal Government for the purpo se of sharin g the Feder ation Acco unt bet ween the federal, State and Local governm ents; Monitoring the accruals and disbur sem ent of revenue from the Federal Acco unt, the States Jo int Acco unt, the Local Government Joint Acco unt, the vario us Special Purposes Acco unts an d such accounts that may from tim e to time be established or designated by the com mission with the approval of the Feder al Government. Ensurin g f ull compliance with establish ed reven ue sharin g arran gem ents as well as full p ublic acco untability for all fun ds so allo cated to various governm ents an d/or agencies involved in the dispo sition of the Federation Acco unt; Liaison with the National Plannin g Com mission an d similar statutory bo dies in the order ly fiscal development of each tier of governm ent; Collaboration with all lay ers of government as well as their ministries, dep artm ents, agencies, an d extra-ministerial units in the prom pt, regular and faithful pro duction of public f inancial statistics; Determination of the remuner ation which it m ay deem appropriate for political office holder s such as member s of the executive an d legislative br anches of governm ent outside the con solidated acco unt; Com missioning, un dertakin g or spon sorin g studies, analysis an d deliberations on subject which m ay bear directly or im pinge sign ificantly on the policy and operation dom ains of the federal fiscal system an d inter-gov ernmental financial relations; Making whatsoever general or specif ic recomm endations as the commission may consider necessary for m ore effective m obilization, collection, allocation and distribution of federal, state and lo cal governm ent reven ues, as well as providin g guidelines for their efficient im plem entation; and

b.

c.

d.

e.

f.

g.

h.

i.

j.

40

k.

Subm itting regular and tim ely ann ual r eports to the Federal Gov ernment on its gen eral activities over an d beyon d its sp ecif ic recomm endations, or ad hoc subm ission s on particular subjects, with such ann ual reports also incorporating the com missions audited acco unts.