Running News - Revenue Allocation Formula

Guardian
January 25, 2005

Federal Govt gets more in new revenue formula * Raises derivation fund board

From Alifa Daniel, Abuja

THE Federal Government has consolidated its grip on the
If approved by the National Assembly, the Federal Government will receive
Prior to April 2002 when the Supreme Court voided the old revenue sharing
Both the Federal Government and states are gainers under the new arrangement.
The central government's allocation went up by 5.19 per cent while the states'
There is however an innovation in the bill. It is a proviso that states,
President Obasanjo had two weeks ago sent the bill to the National Assembly,
A copy of the executive bill for an act to prescribe the formula released by
The balance of 6.5 per cent meant for the National Priority Services Fund
The fund will be distributed to General Ecological Fund (1.5 per cent); Solid
Of the 31.10 per cent allocated to the state governments and the FCT, an
The sharing arrangement for states and the FCT would be subject to other
Regarding the 15.31 per cent set aside for the 774 councils, the bill also
The President, however, dropped the equality status among the councils in the
The formula gave population (30.83 per cent); population density (6.45 per
In Section Two, sub-section six of the bill, the President states: "The
The bill retained the 13 per cent derivation fund for states but created a
The vertical sharing formula allows the state government to get 60 per cent,
The bill also stated that the 60 per cent of the derivation funds specified in
On the 10 per cent meant for the host communities, the bill directed that it
To ease the management of the derivation fund, the bill said: "Each state or
The board has power to monitor and ensure that all projects to be executed
* ensure that the derivation funds are expended only in the manner prescribed
* carry out such other functions or exercise such powers as may be conferred It further stated:

"There is hereby established for the federation, a fund to be known as the "The National Priority Services Fund established under subsection (1) of this
"Each sub-component of the National Priority Services Fund established Federation Account with a new revenue formula presented to the legislature by President Olusegun Obasanjo.
53.69 per cent of disbursed funds from the Federation Account while states will get 31.10 per cent and local councils 15.21 per cent.
formula, the Federal Government received 48.5 per cent, states, 24 per cent; local councils 20 per cent and special funds, 7.5 per cent.
The councils had their allocations depleted by 4.79 per cent.
share rose by six per cent.
through their legislatures, establish a State Derivation Funds Board to manage the 13 per cent derivation fund.
where he gave the details of the new revenue sharing formula.
the National Assembly yesterday stipulated that the 53.69 per cent of the Federation Account shall be allocated in such a manner that the Federal Government would exclusively retain 47.19 per cent.
would be held in trust by the Federal Government for the three tiers of government including the Federal Capital Territory, which is treated as a state.
Minerals Development Fund (1.75 per cent); National Agricultural Development Fund (1.75 per cent) and National Reserve Fund (1.5 per cent).
horizontal sharing formula is to be employed on the basis equality of states (45.23 per cent); population (25.60 per cent); population density (1.45 per cent); internal revenue generation effort (8.31 per cent); landmass (5.35 per cent); terrain (5.35 per cent); rural roads and inland waterways (1.21 per cent); potable water (1.5 per cent); education (three per cent) and health (three per cent).
indices determined by the Revenue Mobilisation, Allocation and Fiscal Commission (RMAFC).
provided horizontal sharing formula.
bill. He explained that the action was to discourage states from indiscriminately creating councils.
cent); internal revenue generation efforts (13.31 per cent); landmass (10.35 per cent); terrain (10.35 per cent, rural roads and inland waterways (6.21 per cent); potable water (6.5); education (eight per cent) and health, (eight per cent).
allocation made to a council shall not form part of the allocation of a state government or the FCT and no state government nor the FCT shall distribute or redistribute the funds so allocated to the councils in any manner other than as specified in subsection (5), that is the horizontal formula for councils of this section."
State Derivation Fund Board to handle the money from resources exploited in such states.
councils 30 and host communities 10 per cent.
subsection (1)(a) shall be shared among states concerned based on the production quantum of the national resources while the 30 per cent for councils shall be shared on a horizontal basis, thus giving 50 per cent based on production quantum, equality (20 per cent), population (20 per cent) and self help projects (10 per cent).
should be shared using a formula prescribed by the State Houses of Assembly and in the case of Abuja, as prescribed by the National Assembly.
the FCT to which derivation funds are payable from the Federation Account shall, by a law of the state House of Assembly or an Act of the National Assembly, establish a board to be known as the State Derivation Funds Board or in the case of the FCT, the Federal Capital Territory Derivation Funds Board, as the case may be in this Act referred to as "the Board".
with the derivation funds are properly executed;
by the law of the House of Assembly or in the case of the FCT, by an Act of the National Assembly; and
on it by the law of the House of Assembly of that state.
National Priority Services Fund into which shall be paid an amount equivalent to 6.5 per cent from the share of the Federal Government from the Federation Account as specified in section 2(1)(b) of this Act;
section shall consist of four sub-component funds as specified in section 2(2) of this Act.
pursuant to subsection (1) of this section shall be administered by the respective management committees established under section 16 to 19 of this Act."

PRESIDENT Olusegun Obasanjo has presented a new revenue formula bill to the National Assembly which, among others, aims to stop the use of number of local governments in determining the amount of funds that would go to the states. Also yesterday, the president submitted for Senate approval a request to enable him raise N65 billion from the money market for the purpose of financing the 2004 budget deficit.

The President's letter forwarding the revenue allocation bill dated January 6, 2005 read: "Please find attached herewith a copy of the Allocation Revenue, etc, Bill 2004 for consideration and process into an Act for my signature.

"You will observe from section 2 sub-section 5 at page 5 that the horizontal formula proposed does not include 'equality of local government.' This is deliberate. As you are aware, there has been such unhealthy competition among states of the federation in the creation of local governments without any regard for constitutional requirements.

It is believed that the situation is being fueled by the fact that 'equality of local government' which has to do with the number of local governments in a state is currently being reckoned with in the distribution of local government allocation. It is, therefore, thought that if 'equality of local government' is removed from the formula, creation of additional local government may become unattractive to the states. This is why I have removed 'equality of local government' from the formula and the percentage allocated to 'equality' now re-distributed among the other indices of the formula."

Also yesterday, a letter from the president seeking to raise N65 billion through treasury bills for the purpose of financing the 2004 budget deficit was read in the Senate. The letter pegged the decision on the failure to recover the looted funds held in Switzerland as previously expected.

The letter addressed to the Senate President and dated January 6, 2005 read: "I write to inform you of our intention to issue 90-day Treasury Bills in the amount of N65 billion as bridging funding to close the budget deficit for the 2004 fiscal year. The treasury bills would be open to subscription to all except the Central Bank of Nigeria.

"As you would be aware, we have been expecting the return of the recovered (looted) funds from Switzerland. Our discussions with the Swiss authorities are now at an advanced stage and the funds are now expected to be released around the end of January 2005. This amount was already programmed into the 2004 budget as a financing item. Our plan is to redeem the bills with the recovered funds once we receive them."