Problems of revenue allocation in Nigeria

Problems of revenue allocation in Nigeria

Almost five years ago the Premium Times published an article explaining how the problems of revenue allocation in Nigeria destroy the country. Nigeria has been trying to change its revenue allocation formula for the best since independence. Still, it seems that these changes had almost no influence! How to save Nigeria? And what is the problem with the revenue allocation? Continue reading to find out!

Problems of revenue allocation in Nigeria

What is Revenue Allocation?

What is Revenue Allocation?

Nigeria is a federative country consisting of 36 states. However, it seems that Nigeria can also be treated as a Unitarian country. This is because the Federal Government receives revenues from the taxes of all states! The Government decides to split these revenues and give to the lower level of governments. Also, the Government does not specify on which programmes the lower level governments should spend this sum of money.

The Revenue allocation should work as a boosting element of the overall Nigerian economy. However, there are problems of revenue allocation in Nigeria. These problems come from various issues, like social, cultural, geographical, political and economic.

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The main principles of revenue allocation

The main principles of revenue allocation

There are certain standard principles according to which the revenue allocation happens. These principles are:

- National Interest. It`s the allocation of the funds for the strategical projects of the country.

- Derivation Principle. It means that the state that provided the most funds will receive the most funds back.

- Population principle. The best piece of pie goes to the most populous state.

- Need. The Federal Government gives the best pieces of pie to the states in need.

- Minimum National Standard. The Government gives the money to the states that have problems in reaching national standards in education, health, etc.

- Even Development. The federal government spreads the money according to the principles of even development. The least developed states receive the most funds.

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- Equality of State. The Federal Government gives the exact same amount of money to every state.

- Independent revenue. The state saves most of its funds for development. The least amount of funds goes to the Federal Government.

- Land Mass and Terrain. The biggest state receives the biggest piece of funds.

- Development of Mineral Ares. The states with the biggest amount of resources – get the biggest funds.

- General Ecology. The biggest piece of pie goes to the states with the worst ecological problems.

According to the Premium Times, at least half of Nigerian economic problems come from the revenue allocations. Nigeria uses a mix of principles for the revenue allocation.

What are problems of revenue allocation in Nigeria?

What are problems of revenue allocation in Nigeria?

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The majority of problems come from the formula of revenue allocation. It seems that despite all efforts, no revenue allocation formula can serve as an ideal for Nigeria. Each ethnic and state group of individuals in Nigeria has their own view of the ideal formula for revenue allocation.

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The Political forces keep fighting over the concepts of revenue allocation and fiscal federalism. It`s very difficult to explain the whole bunch of problems connected with the allocation. This problem emerged in the colonial era. Since that time, there have been various solutions to these problems.

Solutions to problems of revenue allocation in Nigeria

Solutions to problems of revenue allocation in Nigeria

Nigeria has been trying to find the solution to revenue allocation for seventy years. Just look at the number of the revenue allocation commissions!

- Sydney Phillipson Commission of 1946.

- Hicks Phillipson Commission of 1951.

- Louis Chick Commission of 1954.

- Jeremy Raisman-Tress Commission of 1958.

- K.J. Binns Commission of 1964.

- The Dina Interim Revenue Allocation Committee of 1968.

- Aboyade Technical committee on Revenue Allocation of 1977.

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- Pius Okigbo Commission of 1979.

- The 1981 Revenue Act.

- Danjuma Revenue Allocation Committee of 1988.

- Revenue Allocation Formula of 1992.

- The Presidential Revenue Allocation Formula of 2002.

For today, the latest revenue allocation formula was adopted in 2015. Still, the problems with revenue allocation remain the same. Even Government officials want to change the federal system of the country and implement some changes in it. Gov. Akinwunmi Ambode urged the national assembly to discuss the matter of federalism in Nigeria. This information was published by Today on July 15.

Causes of Revenue Allocation problems in Nigeria

Causes of Revenue Allocation problems in Nigeria

Nigeria has been trying to create the best revenue allocation formula for seventy years. Still, there are drawbacks in every solution of the revenue allocation. What are the causes of these problems?

- Ethnicity problems. From the very first commission about revenue allocation in Nigeria, it was seen that the best piece of the pie went to the Northern states, while the rest was given to the East and West states. This created tensions between ethnic groups in the country. This formula is still present.

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- Oil States. Oil states provide the most revenues for the country. At least 80% of the export for Nigeria comes from the oil production. Therefore, the oil States want to have the biggest piece of revenues in Nigeria.

- Political Tensions. The allocation formula usually comes from the capital of the country. It`s known that Northern politics is dominant in the country. Therefore, other parts of the country fear that revenue allocation will always be in favor of Northern States.

revenue allocation in Nigeria formula

There are a lot of other issues with revenue allocation in Nigeria. Still, these three problems mentioned above are the top ones. For 70 years, Nigeria has not found the perfect revenue distribution formula! It seems that there is no solution to this problem. Revenue allocation will always be considered as unfair.

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