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Legislative Issues In Fiscal Federalism In Nigeria – Part One

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By: RT. Hon Emeka Ihedioha
The House of Assembly of Delta State is unique in its level of operational independence and cooperation with the Executive Arm to ensure peace, order, and good governance of Delta State. The topic of our discussion is LEGISLATIVE ISSUES IN FISCAL FEDERALISM IN NIGERIA. You will agree with me that, 'Fiscal Federalism' is a very sensitive and emotional topic in Nigeria generally and in Delta State in particular.

To understand the various concepts encapsulated in the topic we need to dissect the meaning of the words 'Fiscal Federalism' and 'Federalism'.

What is Federalism?
Federalism as a concept of governance means different things to different peoples. Although different definitions exist, the central notion of Federalism is that of a political and administrative framework in which power is shared by the constituent units of a federating union which are relatively autonomous.

In other words, a Federation is in itself a union in which the constituent or Federating units have agreed to come together under a central authority, otherwise known as Federal Government but with much of the powers of the state devolved to the Federating units.

This system of governance is more applicable to plural or heterogeneous societies like our country, Nigeria where diversity exists in culture, language, religion and world view. Other examples of Federal States include the United States, Yugoslavia before its break-up in the 90s, Germany, Brazil, India, Switzerland, Australia and Sudan before the independence of South Sudan etc.

In a situation where the Federal system is properly practiced, particularly under a democratic set-up, it conduces to social harmony and peaceful co-existence. It is therefore understandable why our nationalist leaders, at inception, negotiated for Federalism as the most suitable constitutional framework for Nigeria.
You would recall that prior to the attainment of independence in October 1960; the nationalist leaders including Dr. Nnamdi Azikiwe, Sir Ahmadu Bello, Chief Obafemi Awolowo and Mallam Aminu Kano led the delegations of their various political parties to several Constitutional Conferences in London between 1947 and 1958. The last of such conferences took place in Ibadan in 1959. All this culminated in the adoption of federalism as the agreed system of political governance in Nigeria Within the context of discussing Fiscal Federalism, it is important to further explore the importance of what 'Federalism' means. According to Prof. I. E. Sagay, SAN in his paper'Federalism, the Constitution and Resources Control', 'Federalism is an arrangement whereby powers within a multinational country are shared between a federal or central authority, and a number of regionalised governments in such a way that each unit including this central authority exists as a government separately and independently from the others, operating directly on persons and property within its territorial area, with a will of its own and its own apparatus for the conduct of affairs and with an authority in some matters exclusive of all others. In a federation, each government enjoys autonomy, a separate existence and independence of the control of any other government. Each government exists, not as an appendage of another government (e.g. the federal or central government) but as an autonomous entity in the sense of being able to exercise its own will on the conduct of its affairs free from direction by any government. Thus, the Central government on the one hand and the State governments on the other hand are autonomous in their respective spheres'.

As Wheare put it, “the fundamental and distinguishing characteristic of a federal system is that neither the central nor the regional governments are sub-ordinate to each other, but rather, the two are co-ordinate and independent” In short, in a Federal System, there is no hierarchy of authorities, with the central government sitting on top of the others. All governments have a horizontal relationship with each other. Nwabueze, has identified the following additional characteristics in a federal system.
i)        The power sharing arrangement should not place such a
preponderance of power in the hands of either the national or regional government to make it so powerful that it is able to bend the will of the others to its own.
ii)       Federalism presupposes that the national and regional
governments should stand to each other in a relation of meaningful independence resting upon a balanced division of powers and resources.
Each must have powers and resources sufficient to support the structure of a functioning government, able to stand on its own against the other.
iii)      From the separate and autonomous existence of each government
and the plenary character of its powers within the sphere assigned to it, by the Constitution, flows the doctrine that the exercise of these powers is not to be impeded, obstructed or otherwise interfered with by the other government, acting within its own powers.'

Fiscal Federalism simply means the application of the Federal Principle in Resource Mobilization and Allocation within and among the Constituent units in a Federation.

In other words Fiscal Federalism is the division of powers, functions, duties and financial resources among different levels or tiers of government, namely; Federal, State and Local Governments in a Federation.
In a Federation, the extent of the powers and functions of each level of Government that operates a written Constitution is usually defined in the country'sgrundnum, the Constitution.


Legislative power in Nigeria is divided into Exclusive Legislative lists which is the exclusive province of the Federal Government at the centre.
Concurrent Legislative List is the province of the Federal Government and State Governments legislative powers acting concurrently. We have yet another important power which belong exclusively to the States. This is what is commonly known as Residual Powers. This power is derived from section 4 (7)(a) of the 1999 Constitution. Under this section the State House of Assembly can legislate in matters that are not explicitly stated in the Exclusive Legislative List or in the Concurrent List. It is this section that grants the states, the exclusive authority over matters like housing, health care generally, urban and physical planning, etc. The extent of this power is very wide indeed but is not very appreciated by Commentators or by the States themselves. Indeed if the states assert their full powers derived from section 4 (7)(a), many of the activities of the Federal Government would be deemed unconstitutional in many fields.

In Nigeria, the 1999 Constitution delineates the authority of each tier of government.

This power is carefully provided for in Section 4 of the 1999 Constitution of the Federal Republic of Nigeria.

EXCLUSIVE LEGISLATIVE LIST PROVISIONS ON FISCAL FEDERATION The following items which pertain to Fiscal Matters in the Federation are reserved exclusively to the Federal Government. They are:
Item 62 – Trade and commerce,
Item 59- Taxation of incomes, profits and capital gains, except as otherwise prescribed by this Constitution.
Item 58- Stamp Duties
Item 50 - Public Debt of the Federation
Item 39 -Mines and minerals, including oil fields, oil mining, geological surveys and natural gas.
Item 25- Export Duties
Item 24- Exchange Control
Item 16- Customs and Excise Duties
Item 15- Currency, Coinage and Legal Tender Item 7- Borrowing of moneys within or outside Nigeria for the purposes of the Federation or of any State.
Item 5- Bankruptcy and Insolvency
Item 6- Banks, Banking, Bills of Exchange and Promissory notes.

THE LEGISLATIVE POWERS OF A STATE ARE SET OUT IN SECTION 4 (6)(7) Section 4 (6) The legislative powers of a State of the Federation shall be vested in the House of Assembly of the State.

Section 4 (7) The House of Assembly of a State shall have power to make laws for the peace, order and good government of the State or any part thereof with respect to the following matters, that is to say:-

(a) any matter not included in the Exclusive Legislative List set out in Part I of the Second Schedule to this Constitution.

(b) any matter included in the Concurrent Legislative List set out in the first column of Part II of the Second Schedule to this Constitution to the extent prescribed in the second column opposite thereto; and

(c) any other matter with respect to which it is empowered to make laws in accordance with the provisions of this Constitution.

The Local Government Councils are established in the Constitution in the following way:
Section 7. (1) The system of local government by democratically elected local government councils is under this Constitution guaranteed; and accordingly, the Government of every State shall, subject to section 8 of this Constitution, ensure their existence under a Law which provides for the establishment, structure, composition, finance and functions of such councils.

Section 7 (5) The functions to be conferred by Law upon local government council shall include those set out in the Fourth Schedule to this Constitution.

Section 7 (6) Subject to the provisions of this Constitution -

(a) the National Assembly shall make provisions for statutory allocation of public revenue to local government councils in the Federation; and

(b) the House of Assembly of a State shall make provisions for statutory allocation of public revenue to local government councils within the State.

This defines the extent of Federal and State Legislative Powers. Indeed, the Second Schedule , part II, Section 1, provides for Allocation of Revenue as follows:

'Subject to the provisions of this Constitution, the National Assembly may by an Act make provisions for -
(a) the division of public revenue -
(i) between the Federation and the States;
(ii) among the States of the Federation;
(iii) between the States and local government councils;
(iv) among the local government councils in the States;'

Item D, Sections 7,8,9,10 of the Concurrent Legislative List deals with collection of taxes by different levels of government, Federal, State and Local Government.


Section 162 (3)(4)(5)(6)(7)(8)(10): Section 163; Sections 165; 166; are provisions that further govern the issue of Fiscal Federalism directly from the Constitution: Apart from Sections 162 (2), the other sub - Section of 162 are relevant.

(3) Any amount standing to the credit of the Federation Account shall be distributed among the Federal and State Governments and the Local Government Councils in each State on such terms and in such manner as may be prescribed by the National Assembly.

(4) Any amount standing to the credit of the States in the Federation Account shall be distributed among the States on such terms and in such manner as may be prescribed by the National Assembly.

(5) The amount standing to the credit of Local Government Councils in the Federation Account shall also be allocated to the State for the benefit of their Local Government Councils on such terms and in such manner as may be prescribed by the National Assembly.

(6) Each State shall maintain a special account to be called “State Joint Local Government Account” into which shall be paid all allocations to the Local Government Councils of the State from the Federation Account and from the Government of the State.

(7) Each State shall pay to Local Government Councils in its area of jurisdiction such proportion of its total revenue on such terms and in such manner as may be prescribed by the National Assembly.

(8) The amount standing to the credit of Local Government Councils of a State shall be distributed among the Local Government Councils of that State on such terms and in such manner as may be prescribed by the House of Assembly of the State.

(10) For the purpose of subsection (1) of this section, “revenue” means any income or return accruing to or derived by the Government of the Federation from any source and includes -

(a) any receipt, however described, arising from the operation of any law;

(b) any return, however described, arising from or in respect of any property held by the Government of the Federation;

(c) any return by way of interest on loans and dividends in respect of shares or interest held by the Government of the Federation in any company or statutory body.


By virtue of Section 163 Where under an Act of the National Assembly, tax or duty is imposed in respect of any of the matters specified in item D of Part II of the Second Schedule to this Constitution, the net proceeds of such tax or duty shall be distributed among the States on the basis of derivation and accordingly -

(a) where such tax or duty is collected by the Government of a State or other authority of the State, the net proceeds shall be treated as part of the Consolidated Revenue Fund of that State;

(b) where such tax or duty is collected by the Government of the Federation or other authority of the Federation, there shall be paid to each State at such times as the National Assembly may prescribe a sum equal to the proportion of the net proceeds of such tax or duty that are derived from that State.

Other powers exists to make Fiscal Federalism workable. A typical example is Section 164 (1) The Federation may make grants to a State to supplement the revenue of that State in such sum and subject to such terms and conditions as may be prescribed by the National Assembly.

(2) The right of set-off conferred by subsection (1) of this section shall be without prejudice to any other right of the Federation to obtain payment of any sum due to the Federation in respect of any loan.
The revenue of the Federation of Nigeria comes from seven different sources. These are sale of crude oil, taxes, levies fines, tolls, penalties and charges. Oil accounts for about 80% of the total revenue in the Federation Account.

These Fiscal arrangements are necessary for the smooth running of a Federation. I am excited that after this paper, the next lecture will be 'Delta State beyond Oil'. It has become necessary for States to tap into other non-oil sources of Revenue like Taxation to meet the needs of the State. Taxation indeed is a veritable goldmine that is largely unexplored.

A brief history of how resources are distributed among the various tiers of Government over the years is imperative.

Various formulas have been adopted over the years to guide the allocations of the common resources of the nation. In recommending a Revenue Allocation Formula, various factors are put into consideration at any point in time. The stated essence is to ensure fairness and equity to all sections of the country and to all tiers of Government. Some of the factors considered since 1946 when the process of Revenue Allocation started in Nigeria are outlined below including the Commissions and Committees set up to midwife the process. They are

1. Philipson's Commission (1946): This Commission introduced three principles namely; Derivation, Even Progress and Population. It recommended the use of derivation and even development as criteria for distribution of Revenue. By Derivation, the Commission means each unit of Government would receive from the central purse a proportion of its contributions to the central pool.

2.      Hicks-Philipson Commission (1951): This Commission recommended four general principles such as independent revenue, derivation, need and national interest as the criteria for Revenue Sharing.

3.      Chicks Commission (1953): The main principle for this Commission was derivation.

4.      Raisman Commission (1957):  The Raisman Commission arose from complaint and dissatisfaction with the derivation principle thus creating the Distributable Pool Account and complete regional jurisdiction over personal income tax. It recommended need, balanced development and minimum responsibility with a percentage division of 40% to the north, 31% to the east, 24% to the west and 5% to southern Cameroon.

5.  Binns Commission (1964):  This Commission rejected the principles of need and derivation; it increased the percentage on general import, revenue mining rent and royalties' payable to the Distributable Pool Account from 30% to 35%.  It recommended a percentage division of 42% to the north, 30% to the east, 20% to the west and 8% to the mid-west.

6. Dina Commission (1969): This Commission renamed Distributable Pool Account as state Joint Account, created special Grant account and advocated for a permanent planning and fiscal commission. It recommended national minimum standards, balanced development in the allocation of the states joint account and basic need.

7. Aboyade Commission (1977): It recommended a national minimum standard for national integration (22%), equality of access to development opportunities (25%), absorptive capacity (20%), fiscal efficiency (15%) and independent revenue effort (18%). Other criteria are: 57% to federal Government, 30% to state Government, 10% to Local Governments and 3% to a special fund (7%).

8. Okigbo Commission (1980): The Okigbo Commission recommended percentages on principles: Population (4%), equality (4%), social development (15%) and internal revenue effort (5%). Percentages for
governments: Federal (53%), states (30%), local Governments (10%), special fund (7%)

9. RMAFC (1988): It introduced 5 principles namely; equality of states, population, social development factor, landmass and terrain, internal revenue effort and special fund. It recommended the following percentages: Federal (50%), states (30%), Local Governments (15%), special fund (5%).

Other Laws and Decrees on Revenue Allocations are:

•       Decree 15 of 1967
•       Decree 13 of 1970
•       Decree 9 of 1971
•       Decree 6 of 1975
•       Decree 7 of 1975 (Oyeneye et al, 1988)

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