Revenue sharing formula: Beyond percentages, Nigeria needs fiscal reform

Nigeria has reached yet another defining moment in its economic governance. The Revenue Mobilisation Allocation and Fiscal Commission (RMAFC) has set in motion the process of reviewing the revenue allocation formula, the system that determines how funds from the Federation Account are shared among the federal, state and local governments. The last major review was […]

Nigeria has reached yet another defining moment in its economic governance. The Revenue Mobilisation Allocation and Fiscal Commission (RMAFC) has set in motion the process of reviewing the revenue allocation formula, the system that determines how funds from the Federation Account are shared among the federal, state and local governments. The last major review was carried out in 1992. Since then, Nigeria’s population has nearly doubled, the economy has changed dramatically, and citizens’ needs have multiplied in complexity. On the surface, this review may appear as a mere administrative exercise. In reality, however, it goes to the very heart of how the Nigerian federation functions and whether government at all levels can regain citizens’ trust. It is not only about legality or percentages; it is about whether the Nigerian people can begin to feel the impact of governance in their daily lives.

The Constitution of the Federal Republic of Nigeria is clear on the matter. Paragraph 32(b) of the Third Schedule mandates RMAFC to review the revenue allocation formula from time to time, but Section 162(2) stipulates that any new formula must be laid before the National Assembly by the President and passed into law. This means that while the Commission may recommend, only parliament can make its recommendations binding. The legality of the process is, therefore, not in question; what matters is the substance of the review. Will it finally address the deep-rooted imbalances and failures that have crippled service delivery for decades?

One of the major weaknesses of the present formula is the disproportionate share of resources retained at the federal level. More than half of the Federation Account goes to Abuja, yet most of the critical responsibilities that affect citizens directly fall to the states. Basic education, healthcare, water supply, rural roads, and security are essentially state functions. But with inadequate resources, governors are forced to constantly appeal to the federal government for projects, bailouts and interventions. This not only weakens federalism, it confuses citizens who cannot tell which level of government to hold accountable. More dangerously, it creates a governance vacuum: the federal government overreaches into areas that constitutionally belong to the states, while states pass the buck, citing lack of funds. The outcome is predictable—services fail, blame is shifted, and. the citizens suffer.

Recent data on the Federation Account Allocation Committee (FAAC) disbursements from January to June 2025 makes the case for reform even clearer. Across the 36 states and the 774 local government areas, over N6 trillion was disbursed in just six months – a surge driven by subsidy removal and exchange rate unification. Yet, the distribution reflects deep structural imbalances. The South South, benefiting from the 13 per cent derivation principle, received about N1.56 trillion, with Rivers (N374.56bn), Delta (N366.75bn) and Akwa Ibom (N309.15bn) leading the table. In the South West, Lagos alone cornered N464.51bn, dwarfing entire northern zones combined, while Oyo (N196.23bn) and Ondo (N138.71bn) followed. The North, comprising the North West, North East and North Central, collectively received about N2.76 trillion — significantly less than the N3.35 trillion that went to the southern states.

This imbalance is further compounded when viewed against Nigeria’s demographic and developmental realities. The North, home to more than half of the population and facing some of the country’s deepest poverty and insecurity challenges, struggles to translate allocations into visible development. For example, Kano — Nigeria’s most populous state — received N250.76bn, far below the N374.56bn that went to Rivers, a state with a fraction of Kano’s population but blessed with oil resources. Smaller states like Gombe (N93.47bn) and Zamfara (N115.48bn) received barely enough to make marginal impacts, while per-capita disparities remain stark.

From a Northern perspective, this fuels growing resentment and a sense of structural injustice. While the formula factors in population and land mass, it has not kept pace with demographic changes or the pressing developmental needs of northern states, many of which rely almost entirely on federal allocations for survival. This heavy dependence — what critics call “feeding bottle federalism” — discourages internal revenue generation and breeds inefficiency. At the same time, southern states argue, not without merit, that derivation compensates for environmental degradation and the economic risks of resource extraction. This tension underscores why any formula review must be bold, data-driven, and sensitive to regional realities, or risk worsening the already fragile balance in Nigeria’s federal system.

The tragedy is even worse at the local government level. Designed to be the tier closest to the people, councils have been systematically emasculated through the capture of their finances by state governments. The joint account system means that what accrues to councils rarely gets to them intact. In practice, state ministries or finance bureaus dictate how local government funds are spent. Budgets are often approved in theory but never implemented in practice, with governors determining what is done and when. The Supreme Court has ruled in favour of local government autonomy, but the rulings remain largely ignored. At the grassroots, where citizens should most directly feel the presence of government, little to nothing is visible.

At the state and local government levels, budgeting itself has become hollow. Governors present estimates that legislatures rubber-stamp without scrutiny. Oversight is almost non-existent, as Houses of Assembly often function as mere extensions of the executive. This absence of accountability has entrenched reckless spending, widespread budget overshooting, and a culture where governance is divorced from performance. Citizens are left in the dark, unable to track how their resources are being deployed.

Beneath these failures lies a civil service system in disarray. In many states and local councils, payrolls are swollen with redundant staff, while absenteeism has become normalised. An employee can stay away for months and still receive salary alerts at month’s end. Ghost workers are everywhere, with their pay routed into accounts controlled by corrupt officials and collaborators. Appointments and transfers are frequently manipulated, records are either poorly kept or non-existent, and wage bills consume most of the allocations, leaving little for actual development. This has produced a vicious cycle: funds keep coming in, but instead of building roads, schools and hospitals, they vanish into bloated salaries, ghost workers, and fraudulent schemes. Unless the civil service is streamlined and sanitised, no amount of revenue allocation will produce meaningful results.

Another sensitive but unavoidable dimension of the review is the remuneration of public officers. Despite seismic changes in the economy — subsidy removal, foreign exchange collapse, rising tariffs and skyrocketing cost of living — the official salaries of the President, Vice President, Ministers, Governors and legislators have remained stagnant. Strikingly, it is not known that these public officers — both executives and legislators — have ever publicly complained about the lack of salary review, laying credence to the long-held suspicion that their often lavish lifestyles are sustained by illicit enrichment and systemic corruption.

At the same time, some states of the federation continue to operate illegal pension and gratuity schemes for former governors and their deputies despite a clear Supreme Court judgment declaring such payments unconstitutional. The absence of transparency has allowed these brazen violations to persist unchecked. If citizens had access to real-time disclosure of government receipts and expenditures, such as the monthly remittances and disbursements, these breaches of executive excesses would have been challenged openly, while the RMAFC could have enforced compliance instead of watching these anomalies fester.

Yet, redistribution of resources or adjustment of salaries alone will not solve Nigeria’s fiscal dysfunction. The key lies in transparency. A sure way out of the quagmire is for all three tiers of government to be compelled to publish, every month, exactly what they receive from the Federation Account and how they spend it. Citizens must be given the right to this information in real time. If Nigerians can see in black and white what accrues to their states and councils each month, they will be empowered to monitor budget implementation and demand accountability. This is the practice in many developed democracies. In the United States, state and city budgets are published and openly debated. In the United Kingdom, councils disclose spending above certain thresholds online. South Africa runs an open treasury portal where provincial and municipal transfers are tracked in real time. Nigeria cannot continue to operate in secrecy while claiming to practice democracy.

What is needed now is a reform agenda that goes beyond percentages. This includes correcting the imbalance between the centre and the states so that responsibilities match resources, guaranteeing genuine local government autonomy by ending the joint account system, reforming the state and local government civil service with digitised payrolls and regular staff audits, reviewing the salaries of public officers transparently in line with current realities, and above all, enshrining transparency by mandating monthly public disclosure of receipts and expenditures across all tiers of government.

The review of the revenue allocation formula is long overdue, but it will be futile if it becomes just another adjustment of numbers without addressing the structural rot beneath. Nigerians are not clamouring merely for percentages; they are demanding fairness, probity, and accountability. They want leaders who are remunerated fairly but who in return are held to the highest standards of integrity. They want a civil service that delivers services rather than siphons funds. They want local councils that drive grassroots development instead of excuses. They want states that deliver health, education and infrastructure rather than lip service. They want a federal government that focuses on its constitutional responsibilities instead of everything under the sun.

This review presents an opportunity to lay the foundation for a new fiscal covenant between the Nigerian state and its citizens — one built on responsibility, transparency and trust. If the process is bold and comprehensive, it can begin to restore confidence in a system long discredited by opacity and mismanagement. Anything less will only deepen cynicism and perpetuate dysfunction. The choice is clear: Nigeria can continue to adjust percentages and sink deeper into decay, or it can embrace bold reforms and reclaim the trust of its people. Only the latter path can give true meaning to this long-overdue revenue.

 

Hussaini, mni, resides in Jos