On the Spot with Eric Teniola

September 1, 2020

The states are dying (2)

The states are dying (2)

By Eric Teniola

SINCE population could be used as a proxy for need and even progress, and the statistical basis for using this principle did not exist in 1946, Phillipson applied only the principle of derivation.

His argument that in using it he aimed at inculcating “financial responsibility” into the Regions, was mere rhetoric: all the taxes that entered into the argument were outside the legal and administrative jurisdiction of the Regions.

But Phillipson also attempted to ensure that the shares of the Regions reflected the need to maintain existing levels of regional expenditures as well as provide for “reasonable and unavoidable expansion”.

Officials were blamed subsequently for making assumption on the entitlement of the Region on the basis of derivation, since the statistics of regional consumption of certain commodities were grossly deficient.

Second, controversy developed as to which was being developed at the expense of the other: the relative contribution of the Regions to the total revenues (declared and non-declared) and the relative receipts from the centre diverged widely.

The application of the principle of even progress with population as the proxy would have redressed the balance by giving the North more than the 36 per cent it got against the West with 26 per cent, or the East with 38 per cent.

The dissatisfaction with the Phillipson scheme and changes envisaged by the 1951 MacPherson Constitution which introduced a quasi-federal structure of government led to the appointment in 1950 of Professor John Hicks (1904-1989), a British Economist and Sir Sydney Phillipson (1892-1966), a British Knight and finance administrator to develop a scheme that “over a trend of five years” would achieve a “progressively, more equitable division of revenue”.

By recommending that the Regions should have the power to raise, regulate and appropriate to themselves certain items of revenue, Hicks and Phillipson laid the foundation for the principle of independent revenues whose seeds were already in Phillipson’s category of “declared” revenues.

Since, however, these revenues could not meet the needs of the Regions, some centrally-collected revenues would have to be shared between them. Accordingly, the Commission proposed the principles of derivation, need, and national interest.

It gave 50 per cent of the import and excise duty on tobacco and 100 per cent of the duty on motor fuel back to the Regions on the basis of derivation established by reference to the relative consumption in the Region.

It gave capitation grants to the Regions on the basis of need established by reference to population. But since at the time when the Commission was doing its work, the last census was in 1931 and the next census was two-three years away (1953), the population factor was determined by reference to the male adult tax payers in each Region.

Indeed, the 1953 population was, in many places, grossed up from the nominal tax rolls. The Commission gave special grants to the Regions on the basis of national interest: 100 per cent of the cost of the Regional police force; 50 per cent of the cost of Native Authority police force;

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and 100 per cent of the grants given for education by the Regional Government to the voluntary agencies and local authorities. The Commission’s Report had one outstanding feature. A single factor was used for strict and direct revenue allocation a two-factor formula, of need and national interest was used for grants.

This took care of principles that could not readily, for statistical and other reasons, be accommodated in the formula for direct allocation.

The attempt to look beyond allocation of revenues to cover merely recurrent expenditures was ahead of its time for the then Nigerian Government. The Commission’s recommendation on a uniform tax system and on the need for a Loans Commission for the administration of loans to the Regions and the Centre were rejected by the government.

Agitation soon built up from the West to push the principle of derivation to the limit by applying it to all items of federally-collected revenues. The North pressed for the deepening of the application of the principle of need while the East pressed for the extension of the principle of national interest.

The air was thick with bitter controversy between the Regions. Opportunities for a review of the Hicks-Phillipson proposals came with the Constitutional Conference in 1953.

The (1954) Lyttleton Constitution gave full-self-government to the Regions while the Centre had to wait until 1957 to attain self-government, and until 1960 to achieve independence.

Sir Louis Chick was appointed to ensure, among others, that the total revenue available in Nigeria was allocated in such a way that the principle of derivation was followed to “the fullest degree” compatible with the needs of the Central and the Regions.

Chick followed this injunction strictly. He expanded the allocation scheme to cover not only import and excise duties but export duties, mining rents and royalties, personal income taxes.

The logic of Chick’s recommendation led directly to the breaking up of the Central Marketing Board into Regional Boards in 1954. Their reserves were shared on the same principle of derivation.

The West got about 50 million pounds sterling, the North about 70 million pounds and the East about 30 million pounds. In substance, following the Chick Report, 50 per cent of general import, excise and export duties, 100 per cent of import duties on motor spirit, of personal income tax, mining rents and royalties went to the Region of origin.

His system operated for five years: 1954-59. Bitter criticism of the scheme developed of problems of measurement of consumption of imports (except for motor spirit and tobacco) and instability in export duty receipts. The Constitutional Conference of 1957-58 provided opportunity for a review of the Chick scheme.

The appointment of Sir Jeremy Raisman, civil servant and Professor Ronald Tress (1915-2006), a British Economist, envisaged the impending independence of Nigeria which was to follow in 1960.Their terms of reference were, among others:

To examine the present division of powers to levy taxation in the Federation of Nigeria and the present system of allocation of revenue derived in the light of :(i) experience of  the system to date; (ii) the allocation of functions between the governments in the Federation; (iii) the desirability of  securing that the proportion of the income of regional governments should be within the exclusive power of those governments to levy, and collect, taking into account consideration of national and  inter-regional policy.

To be concluded next week