In almost all the states of the federation the enthusiasm of the newly elected governors has been dampened by the huge debt burden and empty treasury they inherited from their predecessors. Most of the states are in quandary over how to settle outstanding salaries, pension and other financial obligations. In this piece, Assistant Editor, MIKE ODIAKOSE posits that the APC administration has no alternative than to extend their change mantra to true fiscal federalism, which is bound to make the states look inward to improve their Internally Generated Revenue, IGR, instead of depending solely on income from sale of crude oil.
Most of the governors of the 36 states gathered in Abuja last Wednesday for a meeting of the unified Nigeria Governors’ Forum, NGF. The major agenda was the debt burden facing the states and their inability to pay salaries and pension of retired civil servants.
Prior to the meeting some of the states had approached the federal government begging to be bailed out of the financial crisis facing them, without considering the financial status of the federal government itself.
At the end meeting, the governors saw the reality on the ground and swallowed the bitter pill that suggests bail out from the federal government is not feasible option out of their financial quagmire.
Fielding questions from newsmen at the NGF meeting, the chairman of the NGF and Zamfara State Governor, Abdullazeez Yari, said they have jettisoned the idea of begging for bailout from the federal government, as some federal government workers are being owed several months salaries like the situation in some states and it will be unrealistic to expect the federal government that is owing workers to bail out insolvent States.
He emphasised that rather than ask for bailout from the federal government the NGF will meet President Muhammadu Buhari this week to discuss how the funds expended by states for federal roads and other projects can be expeditiously refunded to the states.
His words: “We all know that the economy of the country is in bad shape. So, what we suggested was that a numerous number of state governors have executed various projects for the Federal Government. So, instead of looking for that, let us look for the Federal Government to settle that backlog for us so that we can be able to move forward.
“Nearly all the states; you can have N10 billion, N20 billion, like Lagos more than N50 billion spent on federal projects that is not yet settled. So, if we can get that done, then most of the issues can be resolved in earnest.”
“We discussed that extensively and we are trying to see that we find a lasting solution.
“We are seeing the President to sit down with him. As we are in debt, the Federal Government is also on the same thing because some of the agencies were not paid salaries for six months. It’s not only states. So, it’s the problem of the entire nation, not only states. We are going to work in synergy to cross our fingers, meet with the President so that we can get a lasting solution to this problem.”
The communiqué issued at the end of the NGF meeting also identified pilfering of public funds as one of the reasons the state treasuries are empty also said the governors will undertake a “retreat dedicated exclusively to how states can become more viable and identify means of improving governance.”
Political analysts watching the unfolding events are of the view that the APC administration that came into office on the mantra of change and anti- corruption crusade must be bold enough to tackle the root causes of what led to the bankruptcy in almost all the states.
First the APC administration must implement the report of the 2004 constitutional conference that recommended the removal of immunity clause that shielded some public officers from trial. According to the recommendation, the immunity clause should be removed if the offences attract criminal charges to encourage accountability by those managing the economy at all levels.
Special Courts to handle corruption cases should be established in the light of undue prolongation in the trials and prosecution of corruption cases in the regular courts. A non-conviction-based asset forfeiture law should be enacted with broad provisions to deal with all issues of proceeds of crimes by the anti-graft agencies and the courts.
While the removal of immunity clause and setting up of special courts to handle corruption cases will definitely curtail the pilfering of public funds, the APC administration cannot afford to shy away from piloting the country towards true/fiscal federalism which will end the indolence at the state level to put a stop to what the Deputy Senate President described as ‘feeding bottle federalism.’
The Governors’ failure to meet their financial obligations to their workers is a reoccurring decimal basically because they depend on the federation account for funds to manage the states. Over the years state governors have been lazy, indolent and lack initiative in improving their internally generated revenue, IGR.
Only few states like Lagos, have been proactive in improving their IGR and that was the major reason why the state survived for over 29 months, when former President Olusegun Obasanjo withheld allocation to all the local government councils in Lagos State over the creation of additional councils by the former governor, Ahmed Tinubu. There is no reason why any other state cannot do same if they work on their IGR.
Unlike most states that are always coming to the nation’s capital cup in hand at the end of every month for allocation from the federation account, Lagos state was able to survive because of the resourcefulness and aggressive IGR drive by the state government.
Granted that some of the states are not as endowed as Lagos State, there is no gainsaying the fact that some states simply pay little or no attention to revenue drive in their states. This parlous state of affair has led to the renewed call for a return to fiscal federalism, which is believed will force every state to look inwards rather than running to Abuja for every dime they need to run their state.
Politics of revenue sharing is said to be as old as the republic of Nigeria. The issue of Fiscal Federalism has engaged various commissions and committees since the colonial days. Between 1948 and today, nine commissions, six military decrees, one Act of the legislature and two Supreme Court judgements have been resorted to in defining and modifying fiscal interrelationships among the component parts of the federation.
The first phase of the development of fiscal federalism in Nigeria occurred during the 1948-1952 period. This phase was marked by a centralised financial arrangement in which the excess in the budget of the central government was allocated to regional governments on the principle of derivation.
In the second phase (1952-54) autonomous revenue and tax jurisdiction for the regional governments was introduced in addition to the operation of the principle of derivation for the sharing of federally collected revenue. The basic elements of the second phase were carried over to the third phase (1954-59). A major distinguishing factor of this phase was the emphasis on the derivation principle in the sharing of federally collected revenue.
This pleased the Northern and Western Regions given the boom in their export commodities: cotton and groundnut in the North and cocoa in the West. T
he Eastern Region, whose main export crop: palm oil, was facing difficult times in the global market, was unhappy with its application. In general, this was the period of state-centered fiscal federalism. It has remained the reference point by present day proponents of either higher emphasis on derivation or resource control, especially minorities of the oil-producing areas.
The stalemate over this matter during the 2005 National Political Reform Conference led to the subsequent walkout by delegates from the South-South region.
During the first republic the 1960/63, constitutions provided for 50 per cent derivation in respect of revenues from all minerals. All the regional governments were able to achieve giant stride in various sector of their region as the revenue allocation arrangement made it possible for them to reap maximally from the efforts they put into avenues that will yield them revenue.
This scenario made the central less attractive and this was one of the reason the then Premier of the North and leader of the Northern Peoples Congress, Sir Ahmadu Bello, declined to rule at the centre after his party emerged victorious in the 1960 election.
During that glorious era the revenue of the country was distribute based on principles of deprivation. 50 percent of the revenue from mineral resources accrued to the region from where these minerals were extracted. Thirty per cent was put in a distributable pool, which was divided among all the regions, including the producing region on equal basis. Only 20 per cent of the revenue went to the federal government.
The military intervention in 1966, which came in with Unitarianism, brought new changes as the federal constitution of 1963 was suspended. First, in most instances, the federal government took over state and local government functions for a variety of reasons.
Consequently, new tax measures were introduced including the transfer of legislation and administration of mining rent and royalties to the federal government; centralisation of the marketing boards while the federal government administered all taxes, surpluses and fixing of producer prices.
The military government also took over right to revenue emanating from company income tax, import, export, petroleum profit (PPT), excise taxes and mining royalties and rents; introduced uniform rates in personal income and sales taxes while the states were to administer the taxes.
The administration of former President Olusegun Obasanjo replaced sales tax with value-added tax, VAT, in 1994 and subsequently transferred to federal government for purpose of regulation and administration while the proceeds are paid into the VAT Account for distribution among the tiers of government.
The import of the changes which the military introduced from 1966 was that revenue potentials of the state governments were eroded. Discouraged by the unitary drift of the military government, most of the states went to sleep and never bordered about tapping resources in their states since the bulk of the revenue will be moving to the federal government in Abuja.
Some have argued that the 1999 Constitution violates the principles of federalism in relation to revenue allocation. In developed federal systems the federating units have the right to control their resources and pay appropriate taxes to the federal government.
To achieve true federalism, section 144(1) subsection 3 of the 1999 constitution should be amended so that ownership and control of all resources will be vested in the federating states. The vexatious section provides that “the entire property in and control of all minerals, mineral oils and natural gas in, under or upon any land in Nigeria or in, under or upon the territorial waters and the exclusive economic zone of Nigeria shall be vested in the government of the federation…”
Equally due for amendment is section 162 of the constitution so that the federating units will pay taxes to the federal government from the resources in their areas while Section 315(5)(d) relating to the Land Use Act should be reformed to guarantee the access of people to land and adequate compensation to those whose lands have been taken for public use.
Rather than dissipate energy trading blame with the federal government or lobbying for a review of the revenue allocation formula, state government should consider the option of championing the clamour for return to fiscal federalism and true federalism as recommended by the 2014 National Conference.
This is more so since the demand for crude oil has continued on the downward trend, apart from the fact that some countries have already discovered alternatives to crude oil. If the in-coming administration of General Buhari agrees to revisit fiscal federalism then those core areas where the regions were generating income should be returned to the states, which consequently will lead to devolution of power from the federal to the states and local government councils.
There is no doubt that it might take some time for some of the states to find their feet when fiscal federalism is re-introduced in the country because of decayed infrastructure. There should be
a window period during which states that lack the machinery and capacity to improve their revenue-yielding avenues are assisted by the federal government and neighbouring states to meet the emerging challenges.
Fiscal federalism will further encourage healthy competition between the states as witnessed during the first republic where laudable project initiated in one region is quickly replicated in other regions. It will boost inter-state relation as several contiguous states can come together to execute projects that, otherwise, might be too expensive for individual state to execute like the power project all the South-South states are jointly financing. The fear that fiscal federalism will strangulate some states is misplaced as every part of the country is richly endowed with one mineral resource or the other.
For instance Adamawa state is blessed with abundant Kaolin, bentonite, gypsium, amethst (violet), Lead/Zinc and Uranuin while Benue state has Lead/Zinc, Limestone, Iron-Ore, Coal, Clay, Marble, Sakt, Berytes, Gem stones and Gypsum. Up North, Borno state is endowed with Diatomite, Clay, Limestone, Hydro-carbon (oil and gas), Gypsum and Kaolin. All these are resources that could be tapped for the development of the state without undue reliance on the federal government.


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