Since federalism is about national unity under a single central authority but state autonomy with respect to certain local matters, a primary place to correct Nigeria’s federalism is for the current practice of monthly federal allocation of revenues to states to be stopped since it is not aligned with the true principle of federalism.

Section 162 (3) of the 1999 constitution states that any amount standing to the credit of the ‘Federation Account’ shall be distributed among the federal, state and local governments on such terms and in such manner as may be prescribed by the national assembly. This legal provision forms the basis of the monthly federal revenue-sharing practice to the federal government, states and local governments in Nigeria through an allocation system prescribed by the FAAC.

While this allotment to different states of the federation takes into account the principle of derivation, population, ‘equality states’, internal revenue generation, land mass, terrain, and population density, it violates the lucid principle of federalism. States within the federation ought to be fiscally self-sufficient without any routine allocation in the form of handouts from a federal committee by virtue of a robust state internal revenue generation mechanism that makes the federal government, states and local governments fiscally independent of each other as much as possible—albeit with minor overlaps.

However, this pristine model of federalism cannot work in Nigeria currently because states in the federation are unable to generate sufficient revenue to finance economic growth as the rights to the major means of revenue generation have been legally ceded to the federal government, including four of the most important income sources from customs duties, mineral oils, company income taxes and foreign trade as contained respectively in items 16, 39, 59 and 62 of the exclusive legislative list. While oil and gas earnings from royalties, taxes and other arrangements contribute, at least, 65 per cent to the federation account, ₦500 billion (or 23 per cent) of the April 2024 FAAC allocation to the three tiers of government came from VAT and electronic money transfer levies.

Regardless, states are simply vassals to the federal entity in the entire process as the collection rights of these revenues from minerals and taxes and the lion’s share all go to the federal government. Under the current FAAC revenue sharing formula, the federal government gets 52.68 per cent of the revenue shared, states get 26.72 per cent while local governments get 20.6 per cent; a 13 per cent fee based on the principle of derivation is also credited to the account of the oil producing states, amongst other allocation considerations.

This current centralized mode of governance where all the major rights are concentrated at the centre dates back to General Aguiyi Ironsi’s Unification Decree no. 34 of 1966, which bestowed large swaths of power in the head of the federal military government so as to dissuade sectional affinities.

A sustainable solution to this fiscal impasse would be for the federal government to devolve greater power to the states so they have the rights to the mineral oils within their lands while also having the ability to collect state versions of corporate and value added taxes; the federal government can then sustain itself majorly through oil proceeds from offshore fields, federal taxes paid by mineral producing states, a federal value added tax, federal corporate tax and customs and excise duties just as it is currently done in the US and other developed federal countries. Nevertheless, this power shift will be tectonic for the entire Nigerian entity in actual practice, aside from the fact that the national tax net will have to be widened and properly restructured. On resources, Section 44 (3) of the 1999 constitution will have to be rewritten so that all the mineral oils vested in the ‘government of the federation’ shall belong to the regions where they are found.

Former president, Olusegun Obasanjo, for instance, in a response in 2021 to prominent Ijaw chief, Edwin Clarke, contended that any minerals found anywhere within Nigeria belongs to Nigeria and not to any region. The Obasanjo presidency also secured a major supreme court judgement in 2001 that affirmed the ownership of all offshore oil and gas resources with the federal government of Nigeria.

On the argument that all mineral resources found under Nigerian soil vests in the Federal Republic of Nigeria, Abubakar Umar Kari, an associate professor of political sociology at the University of Abuja, sides with Obasanjo; like Obasanjo, Kari opines that ‘everything’ belongs to the federal government, he also cites the position of Dr. Yusufu Bala Usman, a former Nigerian politician and historiographer to back up the claim that no component unit of Nigeria can claim ownership to any natural resource.

Nevertheless, Obasanjo, Kari and Usman’s positions on resource control are all far from complete. Pursuant to the property clause (article IV, section three, clause two) of the constitution of the United States—the jurisdiction from which Nigeria borrowed the presidential system of government that formed the basis of the 1979, 1993 and 1999 republics—it is trite that the US federal government has the legislative and regulatory power to control the production of resources found under federal land and those resource activities conducted across state lines under the ‘commerce clause’ based on article I, section eight, clause three of the US constitution. Thereafter, individual states and private entities have the autonomy to control resources like oil, gas and coal found on state and private lands through the exercise of harvesting rights subject to a variety of restrictions.

In totality, constituent states in a federal arrangement should not be vassals of the federal government; they should consistently challenge and rearrange their rights and responsibilities through legally acceptable means. The position by Obasanjo that the governments of the Niger Delta states have not fully utilised the revenues shared with them under the 13 percent derivation principle should not also preclude equitable resource allocation; rights must be initially accorded before due accountability can follow.

Lagos and Rivers states have both attempted to enact their own value added tax law that applies to goods and services within their state since 2021, but the Federal High Court has suspended implementation of these laws so as to avoid the incidence of double taxation; Lagos also initially enacted a sales tax, a narrower form of the VAT, on 1 January 1994 (and amended the law on 2 November 2000) but the Supreme Court also ruled this tax as unconstitutional on 8 December 2017 because the federal VAT already covered the field.

The politics of resource sharing aside, the Nigerian nation will continue to experience a litany of unrest until all the indigenes of the federating states feel properly pacified by acceding to them what is theirs; the ceaseless agitations in the Niger Delta since the days of Ken Saro-Wiwa’s Movement for the Survival of the Ogoni People are prime examples of this. Going by precedence, the regional governments of pre-independence Nigeria had far-sighted industrialization programmes due to a federal structure that allowed them the autonomy to handle foreign trade, engage in public-private partnerships and mine their mineral resources.

In 1956, the western Nigeria regional government would go on to confirm the availability of limestone deposits in Ewekoro village in a bid to mine it, emphasizing its rights to the minerals found within the region. The political twists of the early 1960s and the intermittent military takeover of power have all made room for more concentration of powers to accrue in the centre; many states that were created by military decrees due to self-determination efforts also find it increasingly hard to sustain themselves and have to rely on federal monthly allocations as their cost of governance rises.

Nigeria currently practises its unique model of federalism, which has a peculiar unitary tint. Here, the federal government owns all mineral rights under any land in the country and can exclusively legislate on 68 items in part one of the second schedule of the constitution, including on critical issues like defence, taxation of incomes and many other incidental matters.

By virtue of the fifth amendment of the 1999 constitution, the federal and state governments currently have joint custody of legislative rights over electric power generation alongside industrial development, railway construction and other preexisting matters codified in the second part of the second schedule of the constitution. The country also maintains a federation account where all revenues collected by the government of the federation are paid to the three tiers of government: federal, state and local government.

This unitary cum federal model of government is far from perfect, but it has a Nigerian sense to it. Perhaps, through a longer democratic practice, the states within the federation will take on more rights and responsibilities so that governance can fully reach the people at the lowest level⎈