• Thursday, April 18, 2024
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Reinventing fiscal federalism for a brighter Nigeria

Reinventing fiscal federalism for a brighter Nigeria

The recent ban on alcohol sales in Niger State, extending to the Suleja region bordering Abuja, has stirred widespread criticism, prompting calls to exclude the state from Value Added Tax (VAT) revenue derived from alcohol sales. This incident highlights broader fiscal challenges in Nigeria, urging a reexamination of its foundational principles.

Nigeria’s legislative lists, which include 68 items spread across exclusive, concurrent, and residual domains, are in need of urgent amendment. Notably, Schedule 39 addresses minerals and mines, including oil fields, emphasising the need to reassess resource control. The historical struggle of the Niger Delta for resource control resulted in the formation of various bodies, but their effectiveness remains questionable. A legislative amendment could divide Oil & Gas from Solid Minerals, giving states control over the latter for exploration and development. Moreover, redirecting a portion of profits from Oil & Associated Gas to non-oil-producing states could foster more equitable development.

The existing revenue allocation system, managed by the Revenue Mobilization and Fiscal Allocation Commission (RMFAC), needs a revamp. The current metrics, including land mass, population, equity of states, and Internally Generated Revenue (IGR), are flawed. A fairer approach would eliminate land mass and population from the equation, focusing instead on Derivation—derived from royalties, taxes, and profits from minerals—and IGR. Empowering states to collect Personal Income Tax (PIT) and VAT, while implementing a 5% stabilisation fund for vulnerable states, would promote financial stability. This shift is crucial, given the oversized government apparatus that retains 55% of generated revenue, concentrating power in Abuja and leaving only six states financially viable.

Policing, currently an exclusive legislative matter, warrants reevaluation, particularly given rising food inflation and insecurity. Shifting policing to concurrent jurisdiction could address inadequacies in the police force, operating below the global recommended average. To mitigate potential abuses of state police powers, ensuring financial independence for state judiciary and legislature, separating the Office of the Commissioner of Justice from the Attorney General’s Office, and consolidating security votes into a counterparty trust fund for state police commands would be prudent.

The current structure discourages state governors from independent thinking and strategic planning. Encouraging the establishment of state investment corporations with special purpose vehicles could facilitate private-public partnerships for resource development. The Nigeria Governors’ Forum should consider regional collaboration to advance decentralised grids, standard gauge railways, and strategic maritime operations to alleviate congestion and inflation.

The devaluation of the naira, dropping by 82% over the last nine years, exacerbates the financial strain on states. Imo State’s debt situation serves as a stark example, with states needing to raise revenue drastically. Relying on increased federal allocation shares has proven ineffective for decades. A paradigm shift is crucial, emphasising the importance of fiscal autonomy, legislative list restructuring, and strategic regional collaboration.

To a great extent, the case for fiscal federalism reform in Nigeria is evident. Addressing legislative list imbalances, recalibrating revenue allocation metrics, and promoting regional collaboration are critical steps towards fostering equitable development and financial sustainability at the sub-national level. Nigeria must seize this opportunity to reinvent its fiscal federalism framework, laying the groundwork for a more resilient and prosperous future.

Bola Ahmed Tinubu, the President of Nigeria, has the potential to transform into Bola Ahmed Tinubu, the Presidential hopeful and organiser of the Annual Colloquium, who has consistently advocated for fiscal federalism. The President now has the opportunity to prioritise the implementation of fiscal federalism over appeasing Northern political elites, as a strategic move to secure victory in the 2027 Presidential election.

Albert Einstein, the renowned philosopher, inventor of ‘Direct Current (DC),’ co-founder of General Electric, and Nobel laureate, once said:

“The definition of insanity is doing the same thing over and over and expecting different results.”

Kelvin Ayebaefie Emmanuel is an Economist and a Board Member at Obsidian Archenar Nigeria.