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REPORT OF CITIZEN’S FORUM FOR CONSTITUTIONAL REFORM (C.F.C.R.) COLLOQUIM ON DERIVATION PRINCIPLES AND REVENUE ALLOCATION HELD IN PORT HARCOURT FROM 15th-18th AUGUST 2000
OPENING SESSION 16TH AUGUST, 2000
Chair - Prof. Omafume Onoge Speakers - Hon. Anselem Eyo and Prof. Ben Aigbokhan Rapporteur - Mr. Otive Igbuzor
The programme started with an introductory remark by the Chair, Prof. Omafume Onoge. He explained that this is the last colloquium in the series being organized by the forum. He observed that since the series started, the largest number of participants was invited to this colloquium but the attendance did not reflect the number invited. He explained that we could not get an international expert because most of the experts that would have been invited are having their vacation particularly in Canada and the US. He welcomed all participants on behalf of Centre for Advanced Social Sciences (CASS). He noted that the theme for the colloquium has been quite controversial in Nigeria.
In his welcome address the Convener, Citizens Forum for Constitutional Reform (C.F.C.R.), Dr. Jibin Ibrahim opined that the Forum is excited to be in the Garden City to hold the last colloquia in the series by the cfcr. He thanked CASS for organizing the colloquium on behalf of the C.F.C.R. He pointed out that each of the colloquium that the forum has been organizing is attended by different people. He gave a brief history and structure of the forum and gave a highlight of the six colloquia that has been held:
1. Citizenship and Residency Rights 2. Federalism (to address the over concentration of powers at the centre) 3. Engendering the language and content of the Nigerian Constitution. 4. Constitutionally entrenched independent commissions. 5. Freedom of Association and political parties 6. Social and Economic Rights.
He noted that this colloquium on derivation principles and Revenue Allocation is the last in the series. He point out that in the strategic thinking of the forum, we need to put together the recommendations of the colloquia and convene a national conference to take a collective position on the propositions. He observed that reformers and revolutionaries seem to be in agreement that we need to engage the political process and not leave the political space to charlatans and crooks. He noted that Civil Society Organizations have more ideas than fund to implement different programmes that have the capacity to move the country forward. He argued that we need to look for creative ways to continue our work particularly as pauperization of the middle class has made it difficult for self-funding.
BACKGROUND PAPER – HON. ANSELEM EYO
Section 162 of the 1999 Constitution provides for how public revenue will be shared vertically and horizontally. The constitution provides that the principle that should guide the allocation should include population, equality of states, internal revenue generation, landmass, terrain as well as population density. The constitution also provides that the principle of derivation should be constantly reflected in any approved formula as being not less than thirteen percent of the revenue accruing to the Federation Account directly from any natural resources.
The constitutional provision does not give premium to monitoring of the implementation of sharing of revenue. The constitution is weak in the area of fiscal federalism. He3 recommended that: · There should be a strong fiscal policy. The Exclusive Legislative list should be reduced. Residual issues should be left with the state. · VAT should continue and should go to the Federal Govt. · The idea of Federal government being the distributor of funds should be discarded. The Federal govt should not be saddled with the responsibility of collecting and distributing money. It is inconsistent with federalism. The FG should only provide the broad guidelines and all the federating units should be fiscally independent. This will increase economic activities and push up GNP. The problem of dependence on only oil will also be solved in this way.
LEAD PAPER – FISCAL FEDERALISM, REVENUE ALLOCATION AND DERIVAITON PRINCIPLE By Prof. Ben. E. Aigbokhan
Revenue Allocation has generated controversy in recent years. At issue has been the allocation between various tiers of government (vertical allocation) and between resource-rich and resource-poor regions (horizontal allocation). More recently, another dimension has been introduced to the vertical issue, namely the allocation between the resource-rich region, local government and community.
Debates about distribution of national resources within Federal Systems is not peculiar to Nigeria. However, the Nigerian case is unique because the criteria used so far have not enjoyed wide acceptability. Every government in Nigeria has tried to address the problem. One general observation is that changes in the formula are often closely associated with the type of government. Constitutional government tended to adopt formulae which are a closer reflection of the aspirations of the wider sections of the society than was the case with military government e.g. 1963 constitution and 1981 Revenue Allocation Act. Economic theory provides some guidance on ways to bring about workable intergovernmental fiscal relations. The decentralization theorem suggests that local provision of service allows greater responsiveness to the preferences and needs of the local people. Similarly, equity and efficiency criteria provide a guide in tax assignment. The mature federal states allows states where there are resources to control their resources e.g. in the USA, the state of Alaska owns all the lands in the state currently producing oil and collects over $1.1 billion annually in royalties on production on its public lands. Local Governments in several states also collect property taxes on deposits of natural resources such as in Texas, Montana and Wyoming, the latter two being on coal. In Canada, the provinces (states or regions) are entitled to extract a royalty payment in respect of each unit of production. In Australia, States collect royalties but not taxes as only the Federal govt. can impose taxes.
The crucial question is how do we control the resource against the background where the resource is unevenly distributed? Some argue that the control should be spread evenly. Others argue for resource retention by the areas where the resource is found. The mature Federal systems tends to favour resource retention but utilize special grants or equalization grant systems to reduce any fiscal imbalance.
From the above, two options are open to Nigeria: 1. Allow greater control by states over natural resource management and royals. 2. Design revenue – sharing formula that would allow oil-producing areas have greater share of the resources.
The history of revenue allocation in Nigeria shows that various commissions have been set up to look at the issue:
· Phillipson Commission (1946) · Hicks-Phillipson Commission (1951) · Chick Commission (1953) · Raisman Commission (1958) · Binns Commission (1964) · Dina Commission (1968) · Aboyade Commission (1977) · Okigbo Commission (1981) · National Revenue Mobilization and Allocation Fiscal Commission (NRMAFC) (1989)
The first commission recommended certain principles including derivation. The Raisman Commission(1958) removed the derivation principle. This was upheld by the Binns Commission(1964). The Dina Commission reintroduced the derivation principle, which was removed by Aboyade Commission (1977) and Okigho Commission (1981). The NRMAFC reintroduced the denvation principle.
There has been a lot of arguments for and against derivation but the strongest case for derivation remains equity.
DISCUSSIONIn the discussion that followed the presentations, the following concerns and issues were raised: - The suggestion that Federal Government should take all the proceeds from VAT will create problems. Rather certain broad taxes should be identified as FG taxes e.g. Company income tax and others designated as state and LG taxes e.g. VAT. - There is the need to pay attention to the political economy of the various commission reports. Positions tend to shift to suit particular constituencies. The analyses are not informed by logic but preconceived self or sectional interest rationalized and justified by theories. - Most of the lucrative revenue sources are included in the Federal Exclusive Legislative list. - The Federal government spends a lot of money on special projects and deducts at source before distributing from the consolidated revenue fund to states and local government. This is illegal unless there is prior agreement between the Federal Government and States/LG - There is nowhere in the world where all states are equal. States are not equally endowed. Those that are more endowed will necessarily be more developed e.g. California in the US. - There is the need for devolution of more powers to the states and local governments. However, the capacity of local government must be improved. Also, there is the need for monitoring of all levels of government to ensure accountability. - Development cannot come from top to down. It has to be bottom –up. The Federal govt should only formulate policies while the actual implementation of programmes and projects should be by states and L. G. - All the states of the Federation have one natural resource or the other which are not being exploited because of over dependence on oil. There is the need to begin to exploit other resources that are in abundance in the country. - The pivotal role of civil society organizations in bringing about a change and transformation of the society was recognized. - The people of Niger Delta have moved form the position of struggling for increase in the percentage of derivation to resource control. What we should be discussing is the tax to pay to the Federal govt. - The importance of a committed, transparent and accountable political leadership was stressed. - Whatever suggestions we are making should take into cognizance the possibility of restructuring of Nigeria. - The need to expand the concept of Locus standi - Long history of neglect and injustice to the people of oil producing areas - The need for some form of fiscal equalization. Although states cannot be equal, there must be some access to available resources guided by certain principles e.g. equity, justice and fair play - Constitution making process is a political issue. - As we ask for resource control, mechanisms and values must be put in place so that we do not create opportunity for local people to continue the looting of the treasury. A communiqué committee was set up made up of the following people: 1. Prof Ben E. Aigbokhan - Chairman 2. Mr. Otive Igbuzor - Secretary 3. Dr. Peter Ozo-Eson - Member 4. Ms Caroline Nagbo - “ 5. Ms Lilian Nwokobia - “
AFTERNOON SESSION
Chair – Prof. Akin Fadahunsi
PRESENTATION BY ORGANISATIONS
Afrigov – Afrigov presentation was titled Revenue Allocation crisis and sustenance of Democracy in Nigeria. The paper looked at the politics of revenue allocation in Nigeria and the inability of the various commissions to arrive at a solution to the problem. It noted that derivation was applied in the 1950s and 60s when cocoa and groundnut were the main revenue generators. However, when oil became the main revenue earner, the percentage of derivation plummeted to 1.5% by Okigbo Commission report. It concluded that the formula used so far is anti-development and need to be changed.
GADA – Supports that more revenue should accrue to the areas that produce revenue for the country. As more resources are released to there areas, the interest of women should be addressed.
IHRIL – Noted that the environment where oil is explored has been subjected to environmental degradation and pollution. Acid rain, child pregnancy, rape and many other social evils are the order of the day. Most of these communities do not have social amenities. The people have also suffered intimidation and oppression. However, the people in these communities have been enlightened to know that their situation was not created by God but man made. People started agitating for increase in derivation. OMPADEC was set up. Nothing happened. NDDC Act has been enacted. It is being passed to and fro between the Executive and Legislature. It is likely that with the NDDC, nothing will happen. The way Forward – The position has moved from derivation to control of resources. There are legal limitations which need to be addressed e.g. Land Use Act of 1974, The Petroleum Act of 1968 etc. True Federalism is the answer to the problem. There is the need for all of us to come together to decide how we want to live together as a nation.
WIN- The oil producing areas get very little and something must be done about it. - Nigeria has concentrated on oil and there is the need to look beyond oil. - Called on all to use all available means except violence to address the issues so that people can use their resources to develop themselves. MOSOP – noted that everybody have started embracing the ideas of Ken Saro Wiwa. She argued that if the Niger Delta people were united, they would have made more progress. She traced the problem to the Minerals Ordinance Act of 1914 during the colonial era. The biodiversity of the Niger Delta is completely destroyed. Oysters and periwinkles are destroyed. We have a rentier state that is not addressing the problem of the people. MOSOP wants total control of resources.
CASS – posits that the changes and proposals that should be made in the process of constitutional review need to be articulated. The constitutional matter involves two issues:- 1). Fiscal Federalism between different tiers of government 2). Issues of derivation principle. There is the need to de-emphasize the preponderance of federal Government in resource distribution. There is the need to more resources from the Federal Government to state and local government. The massive resource of the Federal government has been the petrol that is fueling corruption in Nigeria. CASS proposed a declining scale of allocation.
Rather than being particularistic, we need to cast the principle in more general terms and not just oil. We should reinvent our federation in a way that it will blossom in the true sense of federalism. The principle of derivation can be applied to any revenue earned including VAT, oil and other mineral resources. The nature, distribution and use of revenue from oil have been detrimental to development. The position of CASS is that there should be resource control in all areas including VAT, oil and other mineral resources. Exploration and exploitation of coal, Tin and other mineral resources damages the environment in the same way as oil. The constitution should specify Federal and State taxes. There is a problematic associated with this suggestion which should be noted. This is the issue of whether the revenue accruing from derivation should go to the communities where the resources are found or should go to the whole state including the areas where the resources are not found. CASS is of the position that the revenue should go to the communities where the resources are found.
The Chair, Prof. Akin Fadahunsi summarized the issues raised by the presentations b y organizations as follows: v What are the agreeable principles of revenue allocation? v How do we move from fiscal centralism v The issue of justice, fairness and equity v Gender equity v Neglect of communities where oil is produced v The need to remove resources from the Federal Government and redistribute to the state and local government. But by how much? Should it be arbitrary or should it be based on the functions that will be transferred? v Resource control
DISCUSSION A participant argued that the best way is to convince all Nigerians that there is nothing like national cake. Prior to 1966, nobody was talking about national cake because the regions were strong. This was because there was individual initiative and regional initiative. There were a lot of self-help projects e.g. to build schools. The initiative rested with individuals who were engaged in profitable business. It can be argued that if the communities have the resources, they will develop themselves. It is impossible to return to regionalism. What we need is reverse dependence. The Federal Govt should depend on the states; the states on LG and LG on the communities. If you have sustainable projects for the communities they will not engage in destruction. He suggested that 1. Royalties should be paid to the communities and 2. Gas flaring tax should be paid to the communities 3. Terminal taxes should he paid to the communities
He argued that the problem is not the Land use Act because the Act recognizes community land, grazing land and forest reserve. What need to he repealed is the law that provides that anything below the ground does not belong to the community. It is derived from British law. A similar law was in operation in Canada and Australia but has been abolished. Concerning the acquisition of land, the Federal Government should not pay compensation but should lease the land and pay yearly to the communities. Countries with resources like Botswana (Diamonds) and Libya and Kuwait (oil) have future generation trust funds. If there is a fall in revenue, they utilize the interest on the short term fund to augment the budget. They do not touch the medium term fund at all. There is the need for such a fund in Nigeria.
There is also the need to institutionalize ways of releasing money from the consolidated revenue fund so that other organs of government (ie legislated judiciary) will not be at the mercy of the executive. There is also the need for a civil monitoring committee on how public money is being spent. There is need for audited report at all levels of govt. The problem of the Land use Act was extensively discussed and there were suggestions by various participants including. -The practice of land tenure in the country must be separated from the principles of the Land use Act. There is a lot of abuse of the act in practice. -There is the need for proper realigning of the Land use Act with the 1999 constitution. -The land use act should be abrogated completely. -The land use act was promulgated to facilitate capitalism and for the emerging capitalist class to have access to land. Other points that was raised during the discussion included: -The fact that every conflict in the county to day is linked to revenue sharing. -The onshore and offshore dichotomy and the law of the the sea -The corruption at the local government level and the degree to which people tolerate it is because they know that corruption is going on at the federal level. -The laws for solid minerals is different from petroleum laws. If you want to mine in the plateau for instance, you only need to take a licence from the Plateau state govt. -The need to encourage states to develop all possible resources of revenue to get away from dependency culture.
17th August, 2000.
Chair: Dr. Jibrin Ibrahim
There was a recap of the previous day’s proceedings presented by CFCR Secretary, Mr. Otive Igbuzor. This was followed by presentations by organisations.
HURILAWS: The presentation of HURILAWS was titled Revenue Allocation Debate: The Human Rights Perspective. The organisation posits that revenue allocation in Nigeria is unfair and problematic. It argues that no short term measure can solve the problem without a holistic overhaul of the legal framework. It suggested four tiers of government- Federal, Regional, State and Local government. All the tiers of government should be autonomous. It suggested the review of Section 315 of the constitution along these propositions. It also suggested the enlargement of Human Rights provisions in the constitution.
CDHR: CDHR raised the question of the composition of the membership of the Mobilisation & Fiscal Commission. It is of the opinion that the states should nominate their representatives and not the President. The organisation made the following suggestions:
· Communities and states close to Ports should be entitled to certain percentage of Port duties. · Certain percentage of VAT should be given to states where the money is collected. · The people should be involved in the process of revenue allocation.
ERA: ERA argues that the People of the Niger Delta reject the 1999 constitution because it is of military origin. The people also reject any form of revenue allocation formula and demands total resource control.
DISCUSSION In the discussion that followed the following points were noted:
· The issue of fiscal federalism is a serious problem confronting Nigeria and should be tackled in the proper way. · The need to distinguish between natural resources and other tax bases; control and ownership; and the need to make uniform laws concerning mineral resources. · The importance of technology in exerting control over resources.
At the end of the discussion, the following consensus emerged:
· There is problem with fiscal federalism in Nigeria. · There is the need for resource control by communities where the resources are found. · There must be some form of redistribution both vertically and horizontally since there are disparities in all federal societies.
The colloquium then divided into two groups to consider the following:
1. Resolving the revenue allocation crisis in Nigeria : What options? 2. How can the option be implemented? 3. Recommendations for constitutional amendment. 4. Plan of action.
GROUP ONE
WHAT ARE THE OPTIONS FOR RESOLVING THE REVENUE ALLOCATION CRISIS IN NIGERIA?
(1) Community ownership of land (Abrogation of the land use Act) (2) Government should continue to have control over taxation (3) We must separate natural resources from other taxable Activities (Oil & Solid Mineral Resources/ VAT) (4) The place of the Nigerian commonwealth in the entire fiscal arrangement (a) Equalization of laws – whether in relations to petroleum resources or solid minerals (b) To constructively engage the present democratic system (Through legislative Executive / Advocacy) – National Assembly There must be Fiscal negotiation with communities that owns resources.
PLAN OF ACTION CONSTITUTION ARRANGEMENT
(1) Abrogation of land use Act (2) Equalization /Amendment of the petroleum Act / solid minenerals Act in line with principles enunciated above (3) Abrogation / Amendment of any other law that contradict any of the above stated principles.
THE ROLES OF CITIZENS’ FORUM(1) CFCR should take the issues to communities for inputs.
GROUP TWO RESOLUTIONS The group recommends total control and ownership by the federating units over their resources including those in adjoining territorial waters.
RECOMMENDATION FOR CONSTITUTIONAL REFORM Section 44, sub section 3 and other sections with similar provisions should be amended to reflect the principle of resource ownership and control.
PLAN OF ACTION Work with other groups and government to review the 1999 constitution. Organize a plenary conference of the CFCR. Support a national conference if it becomes inevitable. Distribution from the federation account should be between or among the union government, federating unit and any other tier of government as may be determined. Equalization fund should be distributed on the basis of balanced development, basic need and minimum standard. Population density and landmass should be trucked out as basis of distribution of the equalization fund. A specific percentage of the federation account should be dedicated to national disasters and ecological problems. In view of the above, revenue sources distribution should be restructure as follows (a)Import duties and Export duties should be legislated, administered and retained by the federation account. Excise duty should be legislated by the federal union, administered and retained by the federating units. Company income tax should be legislated, administered and retained by the federation account while personal income tax should go to the federating units. VAT should be legislated and administered by federal government but retained by the federating unit. Federation account should be deposited with Administrative charges. Other minor revenue source should remain as they are.
DISCUSSION AND CONCLUSION
In the discussion that followed the group presentations, the following consensus was reached:
· The land use act contradicts most of the colloquium resolutions. Therefore, the land use act must be substantially reviewed; and Nigeria communities must take a position on land tenure system. This has to be done through debates and consultation. · Excise duty should go to the federating units while the federal government legislates on the excise duty with administrative allowance or percentage attached. · In order to justify true democracy, ownership & control of resources by the people (community) must be constitutionally recognized There must be equalization provision with regards to distribution of resources.
Finally, the convener thanked the participants for their endurance and contributions and enjoined them to remain with CFCR in the constitution review exercise.
In his own remarks, Prof. Onoge of CASS thanked the participants for the opportunity given to CASS to host the colloquium. He also appreciated the opportunity of learning new things, meeting old colleagues and sharing ideas with participants. He promised that CASS will look into the possibility of organising conferences on the land use act.
A background paper on fiscal federalism presented by Hon. Anselem Eyo, the south-south co-ordinator of the citizens forum for constitutional reform (CFCR) at the Forum`s thematic national colloquium held at airport hotel, port Harcourt, rivers state from 15th-18th august, 2000.
As part of the fundamental objectives and directive principle of state policy of the Nigerian federation today, the provision on fiscal and revenue matters are contained in part C of chapter 6 of the 1999 constitution. Specifically, these provisions as are found in sections 162-168 of the said constitution, deal principally with maintenance of the federal account and how the funds there in should be allocated or distributed to the respective federating units that make up the federation. But somehow however, even those provisions as innocuous as they may look, create problems and open escape routes which operate to make the implementation scandalously abused. Thus, for instance, while section 162(2) of the said constitution contains the directive principle on the criteria which the National Assembly should use in the case of horizontal allocation, the constitution on the other hand appears to be silent on the corresponding criteria for vertical sharing across the board, of revenue between the respective tiers of the federating units. The obvious unworkability of both the provisions and practice of revenue sharing have in the circumstance been a great cause of not just worry, but sustained unrest and disaffection among the federating units. And the worst hit from this system are particularly those areas, the golden geese, where the these distributable funds, the golden eggs, are derived, whom even the aggressively negotiated but reluctantly conceded 13% palliative constitutional provision has refused to howsoever justifiably pacify or reasonably assuage. The multiple effect of both the constitutional principle of arrogating to the federal government the prerogative of being the distributor of revenue, as well as the seeming acceptable practice of same over the years, appears to be the matter that has rocked the very bottom of stability of our existence as a federation. Appropriately and logically put, it could be described as a contradiction in terms and an aberration of international norms and principles of fiscal federalism. Little wonder therefore why our development efforts get so stalled or ineffective. Little wonder also why our other systems fail or refuse to respond to dynamic prescriptions. We had actually not merely been moving in the reverse direction of federalism but brazenly and faultily constitutionised the imperfection. The end result is that we do not realize maximum benefit from our resources and thus impoverishing rather than developing the aggregate constituent members who make up the federating units.. Having therefore seen how the distribution and use of the resources under the present fiscal policy have been seriously abused, it is time now to reverse towards empowering the federating units rather than impoverishing them. We should evolve a true federalism through dynamic and universally applicable fiscal policies and attributes. In this regard, we should take a bearing from the direction that every federating unit although need not be equal with one another, has one natural resource or the other by whatever name or description. But as long as the Federal Government still maintains its father Christmas position, those federating units naturally blessed with thick mangrove forest, would be too lazy to think of the economic efficacy of forest reserves in the global setting; thosein the desert areas cannotappreciate a possible research of producing glass from sand and monopolizing the trade by perfection. Etc. Generally speaking the money distributing system has directly been a disincentive for productivity and hence all we have been concentrating our attention on, has been fallings over each other in all attempt to grab the proceeds of what has been produced already. Our abundant natural resources are either being wastefully exploited in certain areas because what is paramount in this regard, is the revenue and not the asset itself, while on the other hand other resources are either being ignored or not even known to exist. When we evolve a dynamically viable fiscal policy consistent with universal federal setting, there will surely be a drastic shift from the competition to grab the already available revenue accruing form our monoculture resource base, to a competition of development of the numerous other resource bases by the practical development of our respective natural resources that are every where. What this means in effect is that we need fiscal polices, which promote the economic development of our natural resources. Each state should be allowed to develop that which it is naturally endowed with. By this approach, every federating unit and the inhabitants therein will see itself as stake holders of the revenue yielding venture which invariably sustains it and the incidence of sabotage and vandalism will be greatly reduced if not altogether eradicated. And as against revenue which is distributable and hence with high probability of misuse, we shall be having prudently earned revenue with more potentiality for prudent use and competitive development as is consistent with every hard earned income with little or no basis for grabbing or misuse. This is because somebody who earns money is more likely to be frugal than one merely sitting down and to wait for distribute it. It is strongly hoped that the GNP will step up and the per capital income of individuals will also improve. All the Federal Government would be doing is to set minimum standards by legislation and regulation in order to maintain fair standards. Since also the Federal Government shall have shed some of its responsibilities to the federating units, it will be in a better position to handle the remaining few crucial matters such as customs, immigration, foreign affairs, defense etc. This it can comfortably do by the respective production taxes that the federating units engaged in one venture or the other pays to the center to maintain those agencies. This is the basis for fiscal federalism.
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