Revenue Mobilization, Allocation And Fiscal Commission As A Tool To National Integration

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Revenue Mobilization, Allocation And Fiscal Commission As A Tool To National Integration

Abstract

This study examines the impact of revenue mobilization allocation and fiscal commission as a tool for national development. The study strongly advocates for a direct revenue allocation to Nigerian local governments; it also identifies roles/functions capable of playing by local governments in national development; and showcases the operational and tactical roles of local government in enhancing national development. Typology of this research work is basically descriptive. Its research method is qualitative. Data was from both primary and secondary sources such as articles, textbooks, lecture notes, journals, newspapers and academic research projects. The contents of numerous data gathered are fittingly analyzed. The study reveals the following facts: grassroots’ development is a forerunner of national development; basic social services are mostly needed at grassroots level; local governments afford citizens the opportunities for political participation, political socialization and political education; and local governments are capable of solving the perpetual problems of rural-urban migration, rural transformation and development.

Chapter One

1.0 Introduction

1.1 Background of the Study

Revenue Allocation is a dynamic process which has been changing with the historical and political condition of the country. The issue of revenue sharing came to sharp focus with granting of the internal autonomy to the regions- North, West and East under the Richardson constitution of 1946 and the subsequent sharing of responsibilities between the federal, state and local governments.

The Federal Government use to declare revenue according to the proportion of its contribution to the central revenue derivation principle, Adebayo (2008). Thus, the origin of federation in Nigeria had brought a lingering problem of how best to find a permanent solution to equitable revenue allocation formula in Nigeria which had been politicized by successive administration both military and civilian regimes.

According to Philips (2007), the three important problems are as follows:-

  1. How to allocate functions rationally.
  2. How to share revenue between the government of the federation
  3. How to allocate taxing powers.

Since 1970 to 2010, there had been a continuous review manipulation and time inconsistence of revenue allocation formula in Nigeria that prompted me to research into a permanent and equitable revenue allocation formula.

The different commissions established to provide equitable revenue allocation formula include:-

1. Two post-independence ad-hoc revenue allocation commissions.

  • Binns Commission (1964)
  • Dina Committee (1969)

2. Four military government issued decrees, all during Gowon’s regime.

  • 1997
  • Decree 13 of 1970
  • Decree 9 of 1971 and
  • 1975

3. Two comprehensive revenue allocation commissions

  • Aboyade Committee (1977)
  • Okigbo Commission (1980)

4. Two revenue allocation Legislation Acts

  • Allocation of revenue Act (Federation Account) (1981)
  • Allocation of revenue amendment Decree (1984) and finally established a permanent National Revenue

Mobilization Allocation and Fiscal Commission (RMAFC) through Decree 49 of 1989, a commission which continues with us today even in the 1999 constitution.

This commission was also inaugurated by His Excellency, President Obasanjo, on the 20th of September, 1999 in line with paragraph 31, part 1 of the third schedule to the 1999 constitution. Indeed, the history of revenue allocation and fiscal responsibility commission in Nigeria in connection with derivation principle and the Niger Delta problems has been quite intriguing.

The origin of a federation established at once raises three important questions we’ll look into in the course of this study namely:

  1. How to allocate functions rationally
  2. How to allocate taxing power
  3. How to share revenue between the governments of the federation. (2007).

Drastic reduction on the principle of derivation in revenue allocation from 100% in 1953 to 13% presently resulted to restiveness in Niger Delta Region of the country which has negative impact on Nigerians GDP/Foreign exchange earnings.

1.2 Statement of Problem.

The Origin of the problems of the revenue mobilization allocation and the fiscal responsibility commission in Nigeria can be traced back to the onset of “Federalism or Fiscal Federalism” is in name only rather than in deed and in truth. In our current revenue allocation formula, where since 1970, the Federal governments have been playing “Musical Chairs” with the lower levels of state and Local government over distribution of the total collected revenue resulting to lack of development according to book “Revenue Sharing and the Political Economy of Nigerian Federalism” by T.Y. Danjuma, (2006). The fiscal federalism in Nigeria has not been able to contribute optimally to social and economic development because of its ad-hoc policy measures adopted the federal government, transferring federally-collected revenue to itself and effectively neutralizing the statutory allocation formula thereby reducing the statutory allocations that are received by state and local governments. These ad-hoc measures including the use of dedication accounts, stabilization funds, petroleum (special) trust fund and AFEM intervention surplus etc: CBN annual report (December 2008)

Thus, the origin of a federation established at once raises three important questions namely:

  1. How to allocate functions rationally
  2. How to allocate taxing power
  3. How to share revenue between the governments of the federation. (2007).

Drastic reduction on the principle of derivation in revenue allocation from 100% in 1953 to 13% presently resulted to restiveness in Niger Delta Region of the country which has negative impact on Nigerians GDP/Foreign exchange earnings. There has been an upsurge of economic nationalism in the oil rich areas. This has involved rigorous demand for wide ranging institutional and distributional reforms, including the amendment of the Nigerian constitution to make mining and minerals a joint federal-state, rather than exclusively federal responsibility thereby neglecting the ecological problems and risks of oil exploration and exploitation at the expense of the host communities. It is argued that oil prospecting and production activities have been systematically destroying the environment of the oil bearing areas, pollution and continuous flaring of associated gas create health hazards and render fishing and other farming activities almost impossible, Osagie, (2009) and this gave rise to militancy and kidnapping in recent times in the Niger Delta Region.

One of the major problems of Revenue Mobilization Allocation and Fiscal Responsibility Commission (RMAFC) is undue interference by politicians (National Assembly Members) and non-implementation of commission’s recommendation which resulted to jumbo salary of Law Makers who worked out their own salary and allowances irrespective of what the commission approved.

It could be recalled that Late Yar’Adua had mandated that RMAFC in 2008 to review the remunerations of Lawmakers in order to reduce national aggregate expenditure due to the wake of the global economic crisis between 2007 to 2009, however, after the review, the former chairman Harman Tukur recommended N11.5 Million as Basic salary and allowances for a senator and N9.5 Million for house of Representative Members but the Lawmakers had in January 2009 turned down on executive bill that sought to out down all political officers emolument. Financial standards August, 23 (2010).

Consequently, the newly appointed chairman of the commission, Engr. Elias Mbam had promised to initiate a plan to give the nation a new revenue sharing formula which is still in the pipeline subject to president Jonathan’s approval.

1.3 Objectives of the Study

From the above analysis, the following objectives were outline by the researcher for in-depth research:

  1. To ascertain if the present revenue association formula is acceptable and equitable in fostering national integration.
  2. To examine if there are possible solutions to the problems that emanate from revenue allocation that will enhance national development.
  3. To ascertain if the federal government interference affects the performance of the commission.
  4. To examine if there are suggestions on the more appropriate percentage allocation of revenue from excess crude oil to the Ministry of Niger Delta Affairs against ecological problems.
  5. To cross-examine if the problem of fiscal commission can affect the taxing power and responsibilities of states in revenue generation.

1.4 Research Questions

  1. To what extent have the unfaithfulness in tax paying as at when due affected the growth of tax collection and revenue mobilization in local governmentsin Nigeria
  2. To what extent has corruption/sharp practices on the part of the tax collector and revenue generator affected the local government council?
  3. To what extent has enforcement or failing to enforce tax on people in local government level affected revenue generation?
  4. To what extent has inadequate administration services affected the growth of the local government council?
  5. To what extent has political instability affected tax collection and revenue generation in local government council?

1.5 Research Hypotheses

  1. H0: there are no possible solutions to the problems that emanate from revenue allocation that will enhance national development
    H1: there are no possible solutions to the problems that emanate from revenue allocation that will enhance national development
  2. H0: the present revenue association and fiscal commission is not acceptable and equitable in fostering national integration in Nigeria.
    H2: the present revenue association and fiscal commission is not acceptable and equitable in fostering national integration in Nigeria.

1.6 Significance of the Study

This study is contemporaneous, that is, timely, because of the urgent need for ethnic groups, policy makers and implementers to understand the nature, scope and dynamics of the current agitation for resource control and practice of true federalism. Also, the study relates to practical problems of Nigerian corporate existence, and it affects over 60 per cent of the population who are marginalized, deprived, alienated, neglected and dissatisfied with the current revenue sharing formula and federal structure. The study will help to guide and sharpen the focus of the Obasanjo government on its option for “political solution” to the issues of resource control in face of Supreme Court verdict. And in many ways, it will complement the theoretical platforms that had been erected in books on federalism. It will be a useful literature in understanding the struggle for resource control.

1.7 Scope and Limitation of the Study

This study focuses on revenue mobilization and fiscal commission as a tool to national integration in Nigeria. In the cause of the study, the researcher encounters some limitations which limited the scope of the study;

Time constraint:

The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

Inadequate Materials:

Scarcity of material is also another hindrance. The researcher finds it difficult to long hands in several required material which could contribute immensely to the success of this research work.

Financial constraint:

Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

1.8 Definition of Terms

Revenue:

In accounting, revenue is the income that a business has from its normal business activities, usually from the sale of goods and services to customers. Revenue is also referred to as sales or turnover. Some companies receive revenue from interest, royalties, or other fees.

Mobilization:

Mobilization, in military terminology, is the act of assembling and readying troops and supplies for war. The word mobilization was first used, in a military context, to describe the preparation of the Russian army during the 1850s and 1860s. Mobilization theories and techniques have continuously changed since then. The opposite of mobilization is demobilization.

Revenue Allocation:

Revenue allocation is the distribution or division of total income, or revenue, in a business, corporate or government structure. It involves a complex process that entails how and where to allocate revenues in order to ensure the viability of departments and maintain the operating structure of the organization.

Chapter Five

Summary Conclusion and Recommendation

5.1 Introduction

It is pertinent to note that this research was to evaluate the effect of revenue allocation and fiscal commission on national integration and development. Thus the topic “revenue mobilization and fiscal commission as a tool to national integration”.

In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges associated with revenue mobilization and fiscal commission in Nigeria.

5.2 Summary

In Nigeria, local governments had at sometimes enjoyed a direct revenue allocation from federation account. National revenue was recommended to be directly given to local governments under the 1976 reform. Ayo (1995) discussed that direct payment to local government from the federation account moved from 15% to 20% in 1988.

Thus, the idea of direct revenue allocation is not new in Nigerian political system. On this political and administrative discourse (Direct Revenue Allocation to Nigerian Local Governments), this findings of this study reveals the following facts, findings and benefits:

  1. That grassroots’ development is a forerunner of national development
  2. That local government due to its localness understands its environment, people and needs more than other tiers of government;
  3. That operating with local governments on a co-equal basis will propel national development;
  4. That local government is capable of solving the chronicle problems of rural-urban migration, rural transformation and development; and
  5. That local governments afford citizens the opportunities for political participation, political socialization and political education. Optimistically, with direct allocation of funds to local governments, viability of local governments on these potentialities would be achieved.

5.3 Conclusion

Nigeria is a multicultural society, a conglomerate of nations with different peoples and cultures, a basket of different religions and world-views and a country with the diverse expectations of its people. the researcher hereby conclude that the need for additional revenue is substantial in many developing countries like Nigeria, but improving revenue mobilization has more importance beyond that. Requirements for relieving poverty and improving infrastructure are substantial: achieving the Millennium Development Goals, for instance, may require low-income countries to raise their tax-GDP ratios by around 4 percentage points (United Nations, 2005). But the quality of measures also matters: increasing revenue by further taxing readily compliant taxpayers can worsen distortions and perceived inequities; conversely, reducing reliance on trade taxes can bring real structural gains that outweigh short-term revenue difficulties. More fundamentally still, the centrality of taxation in the exercise of state power means that more efficient, fairer, and less corrupt tax systems can spearhead improvement in wider governance relations.

From the findings of this study it is clear that progress can be made in the aspect of revenue mobilization given strong political will. There have been disappointments: in some areas of advice (such as early espousal of the global income tax) and in country practice (the use made of improved IT systems, for instance). But several countries have significantly improved their tax performance over relatively short periods, and econometric analysis (comparing performance in differing countries) suggests that many lower-income countries could increase their tax ratios by 2–4 percent of GDP. A common element of success stories is sustained political commitment at the highest levels: even administrative reforms can prompt strong opposition. Reforms must be entrenched, however, to avoid subsequent slippage.

5.4 Recommendations

  1. Powers have to be decentralized, as it leads to better systems of accountability and responsibility to the people. The people will have b better information on resource allocation and management; it will promote local needs and gives incentive to better management.
  2. Each state in Nigeria should participate actively in the exploration and exploitation of its resources and pay certain percentage to the Federal Government, as a way of encouraging competition and grass root development.
  3. There is urgent need for public enlightenment campaign, on the meaning of and implications for Resource Control, True Federalism and Nation Conference, because widespread ignorance of the concepts create fear, anxiety and political instability.
  4. There is the need for well-structured forum where Nigerians can b articulate their national interests, resolve difference, trade concessions, and agree on the rules and structure under which they wish to co-exist.

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