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The Promise of a New Revenue Formula

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By Salisu Na’inna Dambatta

It is interesting that a new Revenue Sharing Formula by the Revenue Mobilization, Allocation and Fiscal Commission (RMAFC) will be worked out soon to replace the 20-year old existing version.

The Chairman of the Revenue Mobilization Allocation and Fiscal Commission, Mr.

Elias Mbam said that in addition to a new sharing formula, the Commission will “expand the sources of revenue for the Federation.

“I intend to do this through diversification in areas outside Oil and Gas, and that includes solid minerals, agriculture and manufacturing.

There is no doubt that the existing renenue allocation formula has been subjected to criticisms by politicians and development experts who believe that the 52.

68 per cent allocated to the Federal Government; the 26.72 per cent to the States and 20.60 per cent for  the 744 Local Government Areas in the country is due for retouching.

However, it is important to note that in the Nigerian peculiar way of doing things, every Revenue Allocation formula, from the first one introduced in 1948 (on the recommendation of Hicks Philipson Commission of 1946) as part of the Richardson Constitution for the three regions of Nigeria to the extant version, has always been criticised or opposed by people who expressed their various perspectives on how the formulae should have been formulated.

It is to tamper those varied perspectives with reasoning that a framework, based on over a dozen of factors or indices, was developed to accommodate various interests and address divergent concerns and foster national acceptance for it.

The indices in the framework listed by  Victor I. Lukpata, Ph.D of the Department of History and Diplomatic Studies, Federal University Wukari, Taraba State, are: Basic needs; Minimum Material Standards; Balanced Development; Derivation;Equality of Access to Development Opportunities;Independent Revenue/Tax effort;Absorptive Capacity and Fiscal Efficiency. Others are Minimum responsibility of Government; Population; Social Development Factor; Equality of States; Landmass and Terrain and finally, Internal Revenue Generation Effort.

The above principles have continued to serve as the yardstick for revenue allocation up to this day.

Each state of the Federation,  the 744 Local Government Areas and the Federal Government get a portion from the Federation Account based on these indices. On its part, the Federal Government gets the portion assigned to it because of the huge responsibilies it bears: ensuring national security, caring for the Armed Forces, the Police Force, Foreign Relations, building and maintenance of the most critical roadways, the railways, internal and international maritime services, Customs, Education, Health, Agriculture and National Food Security and the provision of many more money-guzzling public goods nationwide.

In the process of sharing the revenue, the Federal Ministry of Finance chairs the Federation Account Allocation Committee (FAAC) every month. The Secretariat of FAAC is at that Ministry, but the Department of FAAC is domiciled in the Office of the Accountant-General of the Federation (OAGF).

The Commissioners for Finance of the 36 states, a representative of the Federal Capital Territory, Abuja, are members of FAAC, as are revenue-related entities including the RMAFC, the Nigerian National Petroleum Corporation (NNPC), the Nigeria Customs Service (NCS), the Federal Inland Revenue Service (FIRS).

Much is at stake when it comes to revenue sharing. The quantam of money involved makes it so as the following facts reflect. The sum of N8 trillion was shared in 2018 in spite of the shut-ins in several oil installations. The Federation Account Allocation Committee (FAAC) disbursed a total sum of N6.418 trillion in 2017. It was N5. 1 trillion in 2016 and N6. 011 in 2015 respectly.

Every state in the country, except two, get most of the cash they use in paying  for the services and development projects they deliver to the public from FAAC disbursements. Their internal revenue generation ability is limited by many factors, including lack of seriousness.

That lack of seriousness led to paucity of funds in the states to the extent that workers could not be paid their monthly entitlements. The federal government lent the states just over N2 trillion, beside paying them billions of Naira in refund regarding Paris Club debt write-off in favour of Nigeria.

Given the life-line status of shared revenues for the three tiers of Government in the country, a promise to craft a new Revenue Sharing Formula for the country by the RMAFC is an exciting matter. So, the nation is eagerly awaiting  the new formula, which will ensure that the Federal

Government gets enough resources to provide the kind of services expected from the Centre.

 However, it is possible to expand and further diversify the revenue base. The Federal Inland Revenue Service has demonstrated that by bringing more taxables to the tax net. 

Indeed, the FIRS has announced that it is now targeting a tax base of 45 million taxables, according to the Executive Secretary, Joint Tax Board (JTB), Mr Oseni Elamah.

Elama said that as at December, 2018, Nigeria’s tax payers data base expanded from 20 million (in 2015) to 35 million. This is a huge increase by any measure.

The taxpayers base can actually surpass the 45 million target if the over 1,000 uncaptured sources of tax identified by researchers commissioned by the Federal Ministry of Finance are brought into the tax net. This was disclosed by former Minister for Finance, Mrs. Kemi Adeosun in a speech in Kano on July 14, 2016 at a Conference on Taxation and Revenue generation.

“Minister of Finance, Mrs. Kemi Adeosun in Kano said the Federal Government had identified more than 1,000 dormant revenue lines, assuring, however, that such huge dormant revenue opportunities will be maximised,” a medium reported.

The RMAFC should in collaboration with other relevant sister agencies take advantage of the work done earlier in its Chairman’s drive to expand the revenue base for the three tiers of Government. It is a desirable and doable task.

The Muhammadu Buhari-led administration will simply add another important achievement in the huge legacy it will leave behind for the benefit of future generations of Nigeria if the revenue sharing or allocation formula is redesigned and dormant revenue-yielding lines are activated.

Economy

Domestic Securities Market a Major Source of Funding for FG – DMO

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The Debt Management Office (DMO), says the Nigerian domestic securities market remains a major source of funding for the Federal Government.

The Director-General of the DMO, Patience Oniha, said this on Monday in Lagos at an interactive session with primary dealers in the Federal Government securities market.

According to Oniha, during COVID-19, when the international markets were closed, we were able to raise the full amount needed to fund the budget.

“Last year, we raised seven trillion Naira as new domestic borrowing. It speaks to the size of the domestic market, its resilience, and its sophistication, unlike we have in many African markets,’’ she said.

Oniha said that the 2024 budget had a deficit of six trillion Naira to be financed through new domestic borrowing.

She said that the National Assembly also approved N7.3 trillion Ways and Means for securitisation.

“Out of the new domestic borrowing of six trillion Naira, we have raised N4.5 trillion. For the Ways and Means, out of seven trillion approved for securitisation, we have raised N4.905 trillion.

“The financial sector has come a long way, and this is another strategic meeting to chart a way forward,’’ Oniha said.

Mrs Nadia Zakari, the President, Financial Market Dealers Association (FMDA), said that the Nigerian business environment was evolving and unique, necessitating such interactive sessions.

According to Zakari, such sessions are critical for both market operators and the Federal Government for them to be able to make decisions as they plan for the rest of the year.

“We stand as financial intermediaries, and we are in a very important position of interacting with other market operators, the end investors and the DMO,’’ she said. (NAN)

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Business News

CBN Unveils Strategy to Boost Remittances, Grants AIP To 14 New IMTOs

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By Tony Obiechina, Abuja 

The Central Bank of Nigeria (CBN) has activated plans to double foreign-currency remittance flows through formal channels by granting 14 new International Money Transfer Operators (IMTOs) Approval-in-Principle (AIP).

This was disclosed in Abuja on Wednesday, by the Bank’s Acting Director of Corporate Communications, Mrs.

Hakama Sidi Ali, who stated that the initiative will help increase the sustained supply of foreign exchange in the official market by promoting greater competition and innovation amongst IMTOs to lower the cost of remittance transactions and boost financial inclusion.
 

She said, “This will spur liquidity in Nigeria’s Autonomous Foreign Exchange Market (NAFEX), augmenting price discovery to enable a market-driven fair value for the naira.

“It will be recalled that the CBN Governor, Mr. Olayemi Cardoso, had recently declared: “We’ve set ourselves a target to double remittance flows into Nigeria within a year, a goal I firmly believe is within reach. 

“We are wasting no time driving progress to remove any bottlenecks hindering flows through formal channels permanently. We have a determined pathway and a sequenced approach to tackling all challenges ahead, working hand in hand with key stakeholders in the remittance industry,” she stated.

Continuing, Sidi Ali, said that the CBN viewed increasing formal remittance flows—one of the major sources of foreign exchange, accounting for over 6% of GDP—as a means of reducing the historical volatility in Nigeria’s exchange rate caused by external factors, such as fluctuations in foreign investment and oil export proceeds.

The increase in the number of IMTOs is one of the primary actions initiated by the CBN’s remittance task force, overseen by Governor Cardoso as a collaborative unit pulling together specialists to work closely with the private sector and market operators to facilitate the ease of doing business in the remittance ecosystem in Nigeria. 

The task force was established as a direct result of an executive learning session with IMTOs during the World Bank/IMF Spring Meetings held in Washington DC, United States of America, in April 2024. The task force will meet regularly to implement strategy and monitor the impact of its measures on remittance inflows.

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Economy

FG Vows To Ensure Continuous Flow of Tax Revenue – Madein

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By Tony Obiechina, Abuja 

The Federal government is committed a tax culture that will ensure the continuous flow of revenues into government coffers, the Accountant General of the Federation, Dr Oluwatoyin Madein has said.

Madein stated this at the 26th Annual Tax Conference of the Chartered Institute of Taxation of Nigeria (CITN) in Abuja, with the theme: “Sustainable Tax Culture and Economic Roadmap for Nation Building”.

Madein said, “Like the CITN, the Office of the Accountant-General of the Federation is committed to a sustainable tax culture that will ensure the continuous flow of revenues even at an improved level.

“Tax revenue as at today is the highest source of revenue accruing to the federation.

Therefore at the Federation Account Allocation Committee meetings we eagerly await the numbers coming from the FIRS because the performance keeps on increasing and brings succour to all tiers of government.”

She charged tax practitioners to work harder in getting more revenue from taxes, stressing that tax revenue is currently the highest income source for the federation.

The government noted that based on the current high revenue from taxes, members of the Federation Accounts Allocation Committee were always looking forward to the figures from the Federal Inland Revenue Service every month, in order to have funds to share to the three tiers of government.

“Tax revenue as at today is the highest source of revenue accruing to the federation. Therefore at the Federation Account Allocation Committee meetings we eagerly await the numbers coming from the FIRS because the performance keeps on increasing and brings succour to all tiers of government”, she added. 

FIRS exceeded its 2023 revenue target by N816bn, as its total actual revenue collection for last year stood at N12.37tn, outperforming the N11.56tn target.

This is contained in a presentation by Amina Ado, Coordinating Director of Special Tax Operations Group at the FIRS.

The accountant-general tasked tax practitioners to step up efforts in collecting taxes, so as to shore up more revenue for the government to provide infrastructure and other amenities.

Madein said, “Let us remain steadfast in our commitment to building a better future for all. Together we can harness the transformative power of taxation to create a more prosperous, equitable and sustainable world.

“Like I said earlier, at FAAC we eagerly look forward to tax numbers because at the moment revenue from non-oil has been a great revenue source to the federation.

“Therefore, to tax practitioners, you are doing so well, but we need more of this to be able to deliver on all the areas that the citizens are looking forward to, because for even infrastructure development, it is only through funds that we can get it done.”

She further stated that it was her strong belief that “the conference will go a long way to deepen the collaboration between our organisations in building capacity for all the professionals, experts and tax payers for better understanding of the tax laws, rules and regulations.”

In his remarks, the President/Chairman of Council, CITN, Samuel Agbeluyi, pointed out that the withdrawal of subsidies on fuel and electricity had reduced the purchasing power of the masses.

He noted that raising electricity tariff for a selected band after fuel subsidy was withdrawn “is going to reduce the purchasing power of the masses. So we urge govt to consider these actions on the masses.

He, however, stated that the institute was happy to know that President Bola Tinubu had asked the Central Bank of Nigeria to slow down on the recent cybersecurity levy that was approved by the apex bank.

“We will continue to advise the govt on its policies, considering how these polices affect the citizens,” Agbeluyi stated.

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