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 Federation Account with a new revenue formula presented to the legislature by President Olusegun Obasanjo.

If approved by the National Assembly, the Federal Government will receive 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.

Prior to April 2002 when the Supreme Court voided the old revenue sharing 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.

Both the Federal Government and states are gainers under the new arrangement. The councils had their allocations depleted by 4.79 per cent.

The central government’s allocation went up by 5.19 per cent while the states’ share rose by six per cent.

There is however an innovation in the bill. It is a proviso that states, through their legislatures, establish a State Derivation Funds Board to manage the 13 per cent derivation fund.

President Obasanjo had two weeks ago sent the bill to the National Assembly, where he gave the details of the new revenue sharing formula.

A copy of the executive bill for an act to prescribe the formula released by 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.

The balance of 6.5 per cent meant for the National Priority Services Fund 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.

The fund will be distributed to General Ecological Fund (1.5 per cent); Solid Minerals Development Fund (1.75 per cent); National Agricultural Development Fund (1.75 per cent) and National Reserve Fund (1.5 per cent).

Of the 31.10 per cent allocated to the state governments and the FCT, an 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).

The sharing arrangement for states and the FCT would be subject to other indices determined by the Revenue Mobilisation, Allocation and Fiscal Commission (RMAFC).

Regarding the 15.31 per cent set aside for the 774 councils, the bill also provided horizontal sharing formula.

The President, however, dropped the equality status among the councils in the bill. He explained that the action was to discourage states from indiscriminately creating councils.

The formula gave population (30.83 per cent); population density (6.45 per 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).

In Section Two, sub-section six of the bill, the President states: “The 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.”

The bill retained the 13 per cent derivation fund for states but created a State Derivation Fund Board to handle the money from resources exploited in such states.

The vertical sharing formula allows the state government to get 60 per cent, councils 30 and host communities 10 per cent.

The bill also stated that the 60 per cent of the derivation funds specified in 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).

On the 10 per cent meant for the host communities, the bill directed that it 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.

To ease the management of the derivation fund, the bill said: “Each state or 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”.

The board has power to monitor and ensure that all projects to be executed with the derivation funds are properly executed;

* ensure that the derivation funds are expended only in the manner prescribed by the law of the House of Assembly or in the case of the FCT, by an Act of the National Assembly; and

* carry out such other functions or exercise such powers as may be conferred on it by the law of the House of Assembly of that state.
It further stated:

“There is hereby established for the federation, a fund to be known as the 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;
“The National Priority Services Fund established under subsection (1) of this section shall consist of four sub-component funds as specified in section 2(2) of this Act.

“Each sub-component of the National Priority Services Fund established pursuant to subsection (1) of this section shall be administered by the respective management committees established under section 16 to 19 of this Act.”
 

Obasanjo presents New Revenue Formula
 

Vanguard (Lagos)

January 12, 2005
Posted to the web January 12, 2005

Emmanuel Aziken
Abuja

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.

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.