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REVENUE ALLOCATION IN NIGERIA BORDERS ON THE PROMOTION OF NATIONAL UNITY AND RAPID ECONOMIC GROWTH

REVENUE ALLOCATION IN NIGERIA BORDERS ON THE PROMOTION OF NATIONAL UNITY AND RAPID ECONOMIC GROWTH

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INTRODUCTION

In Nigeria, decision is who gets what to share of the federally generated revenue that has been a problematic, especially since the discovery of oil and its exploitation and exploration. However, the attempts to tackle this situation have engaged several commissions, committees, degrees, Supreme Court rulings and constitutional amendment. These processes tried to device a proper means of sharing the centrally generated revenue.

These efforts have come in contact with many principles like the principle of Derivation, Need, Population, Even Development, Equality of State, National Interest, Independent Revenues, continuity of Government Services, Financial comparability, Fiscal Efficiency, Tax Efforts, Minimum National Standards, Equality of Access to development Opportunity (Ekpo 2004 ), out of which the principle of Derivation has been variously advocated for and generally applied in the history of Nigerian fiscal federalism.

REVENUE ALLOCATION IN NIGERIA BORDERS ON THE PROMOTION OF NATIONAL UNITY AND RAPID ECONOMIC GROWTH

However, it is sad that despite continuous increase in revenue generation, the expected impact on economic growth in Nigeria has not been realized, why? Is it due to allocation problem? Why has the scenario not improved? What is the implication of these challenges in revenue allocation for sustainable national development? The objective of this study is to empirically examine the revenue allocation formula adopted in the past and its impact on the economic growth process in Nigeria to chat a new order for the current and future development Anyanwu, (1995).

PRINCIPLES OF REVENUE ALLOCATION IN NIGERIA

Revenue allocation refers to the redistribution of fiscal capacity between the various levels of government, or the disposition of fiscal responsibilities between tiers of government. Revenue sharing arrangement is at two levels: One is the vertical allocation, which is among federal, state, and local councils, second is the horizontal allocation, among the states and the local governments.

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Revenue allocation is meant to attain two broad objectives, namely, efficiency and equity. However, the allocation formula is guided by certain allocation principles like population, equal ity of states, internal revenue generation, and landmass and principle of derivation.

These principles according to Aigbokhan, (1997) are exhaustively explained below: Derivation principle. The principle believes that revenue in the federation account should be allocated on the basis of each state’s contribution to total revenue. That is, all revenue which can be identified as having come from, or can be attributed to, a particular region or state should be allocated to it.

This principle was criticized because it makes rich states (or naturally endowed states) richer because the more endowed or developed states will contribute more to the federation account, starving the less endowed or less developed states of developmental funds. It can therefore, leads to greater disparity among the States and subsequently lead to instability within the country.

The principle advocated that states are not equally endowed with resources, some states are more populated and developed than others, and therefore, more resources should be given to the less developed states to bridge the gap in development. The principle is based on the importance attached to developing all states to increase progress and sense of belonging. It will promote national unity by sharing the revenue in the federation account equally among States.

 This formula was to strike a balance between equity, and needs of national economic/ political growth leading to stability. Principle of independent revenues. This principle advocates that states can introduce or charge revenue-yielding taxes within the state as long as it is a stable source of revenue but must con-form to the principles of taxation within the economy and take into consideration national interest Anderson, (2007). The above principles of revenue allocation indicate that there might be trade-off between conflicting items such as derivation, need and national interest.

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EXPENDITURE ASSIGNMENT AND REVENUE ALLOCATION IN NIGERIA

Expenditure Assignment: All the constitution of the Federal Republic of Nigeria allocated function to be performed by each level of government. The 1963 Federal Constitution allocated the functions to be performed by the federal and regional government under two main headings.

That is, the exclusive federal and concurrent legislative list. In 1963 constitution, the local government was treated implicitly as part of the regional governments. The 1979, 1989 and 1999 federal constitution identified functions of each level of the federation. These functions are:

Exclusive list: These are function to be performed solely by the federal government. These functions include: external affairs, issue of legal tender currency, police, defense accounts of government of the federation etc.

Concurrent legislative list: These are those to be performed by federal and state/ regional governments. These include census, higher education, industrial development prisons, National Parks and Antiquities etc.

Functions of Local Government: The functions and roles of the local government are listed in the fourth schedule of the 1979, 1989 and 1999 federal constitutions. The main functions of local governments are provision of public goods, cemetery, refuse disposal public convenience, naming of roads, streets and house numbering, licensing, regulation and control of the sale of liquor, collection of rate, radio and television license etc.

CONCLUSION

Revenue allocation in Nigeria both in the pre-independence era and the post-independence era has been fraught with controversies. The federal, state, and local governments want a sizable share of the federation account. All the revenue allocation formulae have been geared toward the favour of the federal government, given that they have the highest share of the federation account.

 However,  Afolabi, (1999) states that local government have been agitating for higher revenue shares of the federation account thereby throwing up challenges in the current revenue allocation formula in Nigeria. The empirical analysis that determine the effect of revenue allocation to each tier of government on economic growth in Nigeria shows the  affective economic growth such as oil revenue as used in the model is shown to positively contribute to economic growth on the short-run and negative on the long run.

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 It is therefore evident that if revenue allocation to the federating units in the country is optimal and used efficiently for development and investment purposes, the country’s economic growth will improve over time and sustained development will be achieved in Nigeria if the institutions are strengthened as proposed by Professor Douglass North.

REVENUE ALLOCATION IN NIGERIA BORDERS ON THE PROMOTION OF NATIONAL UNITY AND RAPID ECONOMIC GROWTH

 References

Afolabi, L. (1999). Monetary Economics, Ibadan, Nigeria, Heinemann Educational books (Nigeria) Plc.

Aigbokhan, B.A. (1997). Fiscal Decentralization Wagner’s Law and Government size: The Nigerian Experience. Journal of Economic Management. 4(2):32-40

Anderson, G. (2007).Nigerian Fiscal Federalism Seen from a Comparative Perspective, Notes for Address to Governors’ Forum Abuja, Nigeria, by George Anderson, President, Forum of Federations on 28th October, 2007

Anyanwu, J. (1995). Revenue Allocation and Stable Fiscal Federation in Nigeria. Journal of Economic Management, 2 (2): 1-28

Ekpo, H. (2004, August 10-12). Intergovernmental fiscal relations: The Nigerian experience. Paper presented at the 10th year Anniversary of the Financial and Fiscal Commission of South Africa, Cape Town, South Africa.

REVENUE ALLOCATION IN NIGERIA BORDERS ON THE PROMOTION OF NATIONAL UNITY AND RAPID ECONOMIC GROWTH

REVENUE ALLOCATION IN NIGERIA BORDERS ON THE PROMOTION OF NATIONAL UNITY AND RAPID ECONOMIC GROWTH

REVENUE ALLOCATION IN NIGERIA BORDERS ON THE PROMOTION OF NATIONAL UNITY AND RAPID ECONOMIC GROWTH

REVENUE ALLOCATION IN NIGERIA BORDERS ON THE PROMOTION OF NATIONAL UNITY AND RAPID ECONOMIC GROWTH

REVENUE ALLOCATION IN NIGERIA BORDERS ON THE PROMOTION OF NATIONAL UNITY AND RAPID ECONOMIC GROWTH

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