Problems of Revenue Allocation in Nigeria

Revenue allocation in Nigeria has to do with the distribution of income generated by the country among the three tiers of Government in the nation in a way that will reflect the principles of Federalism. The main principle of Federalism refers to the decentralization of power. That is the recognition of more than one level of government in the country. Nigeria is a large country with 36 states and 774 local governments and each level of government has its own responsibilities and powers. In Nigeria, the three tiers of government are the Federal government, state government, and local government.

The amount of income generated by the government at any point is largely determined by the natural resources and the level of economic activities. Over the years, there has been much conflict as regards the allocation of revenue in the country. The proper allocation of revenue is supposed to achieve national unity and rapid economic growth. However, this has not been the case in Nigeria and one would wonder why. In spite of increased revenue generation in Nigeria, the country has not experienced the expected economic growth. What are the problems with the revenue allocation in Nigeria and how does this affect the growth and development of the nation. Find out in this article.

Problems of Revenue Allocation in Nigeria

Problems of Revenue Allocation in Nigeria

It seems no revenue allocation formula has been fit for Nigeria. People have different ideas on what an ideal formula for revenue allocation should look like. Different revenue allocation principles that have been adopted over the years include:

Derivation principle

This formula proposes that that money or income should be allocated based on the contribution of each state to the total revenue. This means that each state will be given based on the total revenue that comes from it. The derivation principle has often been criticized based on the fact that states that are more endowed with natural resources will earn more and thus be richer while less endowed states will not see as much growth and development. This would then lead to a wide gap in development among the regions of the country.

Principle of need

This principle opposes the derivation principle in the sense that it argues that states in the country are not equally endowed with natural resources. It takes into account other factors of disparity such as population and level of development and then proposes that more revenue should be allocated to less developed states so as to bridge the gap in development.

Principle of national interest

This principle advocate for equal allocation of revenue among the states in the country. It is based on the importance of developing all states equally so as to increase progress, national unity, and a general sense of belonging.

Principle of independent revenues

The principle of independent revenues advocates that each state can introduce its way of generating revenue as long as it is not against national interest and also conforms to the principles of taxation in the country. This is to allow for more autonomy among the states of the federation.

The current revenue allocation formula among the three tiers of the Nigerian government are:

Federal Government: 52.68%

State Government: 26.72%

Local government: 20.6%

Federal government bulk allocation

As you can see, the federal government owns a lion share of the revenue. This is one of the causes of conflict as regards the revenue allocation formula in Nigeria. The state and local governments also want a sizable share of the federation account and have been agitating for a higher revenue allocation of the federation account. It is believed by many that all the revenue allocation formula employed in time past have favoured only the federal government.

Many have argued that in spite of the bulk revenue allocation given to the federal government, there is little economic growth to show for it. This is because the federal government is not near to the people as the two other tiers of government. It is advocated that the states and local governments should be given a higher share of the revenue instead of the federal government because the state and local governments are closer to the citizens. Most Nigerians live in rural areas and these are the ones who do not have access to amenities. However, it is the state and local governments that are nearer to these ones and can meet their needs more accurately.

Lack of Autonomy

The local government depends largely on the states and federal government allocation for it to function. The state government also controls the affairs of the local government. This does not allow for proper allocations to be made to the local government. This has in turn led to the inability of the local government to contribute to the growth of the economy in the country through embarkment of projects. Many argue that the local government and the state government should be granted more autonomy. Also, the government should put in efforts to boost the internal revenue generated by the local and state governments. The state and local government should be granted autonomy in the generation and spending of revenue with only an agreed percentage such as 10% sent o a central pool which will take care of all issues on exclusive and concurrent lists.

Ethnicity problems

The problems with revenue allocation in Nigeria also border on ethnicity issues. Over the years, the bulk of revenue allocation goes to northern states based on population, needs, level of development. The rest of the revenue allocation goes to the Eastern and Western states. This has caused great tensions between ethnic groups in the country. It is obvious why; the Eastern states (referred to as oil states) provide the most revenues for the country. Hence, these states believe they are being cheated when the Northern states have more of what they seemingly work for.

Political tensions

The problems with revenue allocation in Nigeria also come from political tensions. Many believe the political terrain in Nigeria is dominated by the north and therefore, revenue allocation will always be in favour of northern states.


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