Problems of Revenue Allocation in Nigeria

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Revenue allocation in Nigeria has to do with the distribution of

income generated by the country among the three tiers of Government in

the nation in a way that will reflect the principles of Federalism.

The main principle of Federalism refers to the decentralization of

power. That is the recognition of more than one level of government in

the country. Nigeria is a large country with 36 states and 774 local

governments and each level of government has its own responsibilities

and powers. In Nigeria, the three tiers of government are the Federal

government, state government, and local government.









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The amount of income generated by the government at any point is

largely determined by the natural resources and the level of economic

activities. Over the years, there has been much conflict as regards

the allocation of revenue in the country. The proper allocation of

revenue is supposed to achieve national unity and rapid economic

growth. However, this has not been the case in Nigeria and one would

wonder why. In spite of increased revenue generation in Nigeria, the

country has not experienced the expected economic growth. What are the

problems with the revenue allocation in Nigeria and how does this

affect the growth and development of the nation. Find out in this

article.



Problems of Revenue Allocation in Nigeria











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It seems no revenue allocation formula has been fit for Nigeria.

People have different ideas on what an ideal formula for revenue

allocation should look like. Different revenue allocation principles

that have been adopted over the years include:

Derivation principle



This formula proposes that that money or income should be allocated

based on the contribution of each state to the total revenue. This

means that each state will be given based on the total revenue that

comes from it. The derivation principle has often been criticized

based on the fact that states that are more endowed with natural

resources will earn more and thus be richer while less endowed states

will not see as much growth and development. This would then lead to a

wide gap in development among the regions of the country.



Principle of need



This principle opposes the derivation principle in the sense that it

argues that states in the country are not equally endowed with natural

resources. It takes into account other factors of disparity such as

population and level of development and then proposes that more

revenue should be allocated to less developed states so as to bridge

the gap in development.







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Principle of national interest



This principle advocate for equal allocation of revenue among the

states in the country. It is based on the importance of developing all

states equally so as to increase progress, national unity, and a

general sense of belonging.



Principle of independent revenues



The principle of independent revenues advocates that each state can

introduce its way of generating revenue as long as it is not against

national interest and also conforms to the principles of taxation in

the country. This is to allow for more autonomy among the states of

the federation.



The current revenue allocation formula among the three tiers of the

Nigerian government are:

Federal Government: 52.68%







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State Government: 26.72%



Local government: 20.6%



Federal government bulk allocation



As you can see, the federal government owns a lion share of the

revenue. This is one of the causes of conflict as regards the revenue

allocation formula in Nigeria. The state and local governments also

want a sizable share of the federation account and have been agitating

for a higher revenue allocation of the federation account. It is

believed by many that all the revenue allocation formula employed in

time past have favoured only the federal government.



Many have argued that in spite of the bulk revenue allocation given to

the federal government, there is little economic growth to show for

it. This is because the federal government is not near to the people

as the two other tiers of government. It is advocated that the states

and local governments should be given a higher share of the revenue

instead of the federal government because the state and local

governments are closer to the citizens. Most Nigerians live in rural

areas and these are the ones who do not have access to amenities.

However, it is the state and local governments that are nearer to

these ones and can meet their needs more accurately.



Lack of Autonomy



The local government depends largely on the states and federal

government allocation for it to function. The state government also

controls the affairs of the local government. This does not allow for

proper allocations to be made to the local government. This has in

turn led to the inability of the local government to contribute to the

growth of the economy in the country through embarkment of projects.

Many argue that the local government and the state government should

be granted more autonomy. Also, the government should put in efforts

to boost the internal revenue generated by the local and state

governments. The state and local government should be granted autonomy

in the generation and spending of revenue with only an agreed

percentage such as 10% sent o a central pool which will take care of

all issues on exclusive and concurrent lists.



Ethnicity problems



The problems with revenue allocation in Nigeria also border on

ethnicity issues. Over the years, the bulk of revenue allocation goes

to northern states based on population, needs, level of development.

The rest of the revenue allocation goes to the Eastern and Western

states. This has caused great tensions between ethnic groups in the

country. It is obvious why; the Eastern states (referred to as oil

states) provide the most revenues for the country. Hence, these states

believe they are being cheated when the Northern states have more of

what they seemingly work for.







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Political tensions



The problems with revenue allocation in Nigeria also come from

political tensions. Many believe the political terrain in Nigeria is

dominated by the north and therefore, revenue allocation will always

be in favour of northern states.

















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