Deriving A Revenue Sharing Formula for the Nigerian Federation: Issues and Challenges by Akpan H. Ekpo

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Acknowledgments

In 2013, the West African Institute for Financial and Economic Management(WAIFEM) bided and won a contract from the Revenue Mobilization, Allocation and Fiscal Commission (RMAFC) to undertake a project to derive a new revenue allocation formula for the Nigerian Federation. WAIFEM completed the study and made recommendations to the Commission. The Commission after a careful study of the report was to make suggestions to Government. Thereafter, government was to recommend to the National Assembly who has the constitutional responsibility to enact a new revenue formula. After five years of submitting the study, nothing has happened and with the coming to power of a new government on May 15, 2015, it seems unlikely whether the agitation for a new revenue formula will occupy the present government.

Based on my experience as a participant in the public policy space in Nigeria, I took the decision that the essentials of the study particularly the processes, methodologies, perception of stakeholders and outcomes be made available to the reading public as well as those interested in burning issues and challenges relating to deriving a revenue allocation formula for federal systems like Nigeria. The detailed report remains with the Commission. It is hoped that someday the Commission would share its recommendations with government. Many completed significant reports and studies commissioned by government have never seen the light of the day. The idea is to make this report on deriving a new revenue formula an exception.

I wish to thank the then Chairman of the Commission, Engr. Elias Mbam who gave us the opportunity to undertake the project. We are also grateful to his commissioners from all the states and the FCT as well as the management and staff for cooperating with us during the exercise. Their commitment to ensure a hitch free exercise would remain never green in our memories. We are grateful to all the relevant agencies in the 36 states and the FCT for their’submissions and interactions during the meetings in the six geo-political zones.

I must place on record the contributions of Professor Festus Egwaikhide, Professor Doughlason Omotor, Dr. Udoma Afangide, Dr. Elijah Udo, the late Mr. Sulaiman Bello, Mr. Alvin Johnson, Nlr. Aniekan James and a host of others who went beyond the call of duty in ensuring the completion of the project. Furthermore, appreciation goes to the Chairman and board of WAIFEM for approving the project under the consultancy unit of the Institution and for providing a conducive environment to undertake the study.

This book represents an important contribution to the issues and challenges in the derivation of a revenue formula for federal systems. It is highly recommended to all stakeholders in Nigeria and to those interested in the country’s economic development.

Akpan H. Ekpo

Professor of Economics & Public Policy
Director General, WAIFEM
Lagos, Nigeria.
June 2018

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Table of Contents

    CHAPTER ONE: INTRODUCTION

      Background
      Rationale for Reviewing the Existing Revenue Allocation Formula
      Challenges of Revenue Allocation in Nigeria

    CHAPTER TWO: OVERVIEW OF PAST EFFORTS AT DERIVATION OF REVENUE ALLOCATION FORMULA FOR NIGERIA

      Phillipson Commission of 1946
      The Hicks-Phillipson Commission ( 1951)
      The Chick Commission (1953)
      The Raisman Commission (1958)
      The Binns Commission (1964)
      Decree No. 15 of(1967)
      The Dina Committee (1969)
      Decree No. 13 (1970)
      Decree No. 9 (1971)
      The Aboyade Technical Committee (1977)
      Okigbo Commission or Presidential Commission (1979)
      Recommendations of Political Bureau of 1986
      Report of the l994/95 Constitutional Conference Committee on Revenue Allocation
      Revenue Allocation in the 1999 Constitution

    CHAPTER THREE: METHODOLOGY

      Introduction
      Review of Revenue Allocation Principles
      Analysis of Vertical Revenue Sharing Principles in Nigeria
        -Overview of Horizontal Revenue Sharing Principles in Nigeria.
      Assignment of Expenditure Functions and Tax Powers in Nigeria
        -Division of Expenditure Responsibilities
        -Assignment of Taxes

    CHAPTER FOUR: ANALYSIS OF PUBLIC FINANCES IN NIGERIA

      Federally Collected Revenues and Federation Account
      Revenue and Expenditure Pro?les of the Three Tiers of government
      Profile of Federal and State Unemployment rates, 2007 — 2011
      CHAPTER FIVE: INTERNATIONAL EVIDENCESILESSONS FROM OTHER FEDERATIONS

        Assignment of Expenditure Functions and Tax Powers
        Division of Expenditure Functions and Taxes in Brazil
          -Assignment of Expenditure Responsibilities in Brazil
          -Assignment of Taxes in Brazil
        Canada Experience
          -Tax Assignment
          -Expenditure Responsibilities
        Ethiopia’s Fiscal Federalism
          -Assignment of Expenditure Functions in Ethiopia
          -Division of Tax Power in Ethiopia
        Division of Functions and Tax Assignment in Germany
          -Expenditure Assignment
          -Assignment of Taxes

      Assignment of Expenditure Functions and Tax Powers in India

          -Assignment of Expenditure Functions in India
          -Tax Assig:nment in India
        Division of Expenditure and Tax Assignment in the United States of America
          -Assignment of Expenditure Responsibilities
          -Tax Assignment
        South Africa
        Indonesia
        The Malasian Federation
        Austria
        Spain
        Lessons for Nigeria

      CHAPTER SIX: DERIVING THE RECOMMENDED REVENUE ALLOCATION FORMULA: AN ANALYSIS

        Introduction
        Memoranda Received and Retrieved Questionaire on Revenue Allocation
        Vertical Revenue Allocation
          -Analyses of Expenditure Profile
          -States Governments’ Proposals on Vertical Revenue Allocation
          -Local Government Councils‘ Proposal on Vertical Revenue Allocation
          -Proposals on Vertical Revenue Allocation by Individuals, Interest Groups and Retrieved Questionaire
        Combined Proposals on Vertical Revenue Allocation Based on Memoranda Received and Total Expenditure
        Assignment ofweights on Functional Expenditure Responsibilities
        Derivation Principle
        Horizontal Revenue Allocation
          -Analysis of Proposal by States for Horizontal Revenue Allocation
          -Local Government Proposals on Horizontal Revenue Allocation
          -Average Proposal by Local Govemment Councils on various Horizontal Allocation Criteria
          -Combined Proposal on Horizontal Revenue Allocation
        Summary of the Recommended Revenue Allocation Formula
        Statutory Grant Fund
        Funding of Primary Education
        Horizontal Allocation Formula
        Derivation

    CHAPTER 7 CONCLUSION

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