Landmark Rulings Reinforcing Federalism in Nigeria

Whether it’s the Supreme Court’s judgments nullifying the National Lottery Act, striking out the suit by the 36 states seeking to compel the federal government to account for earnings from liquefied natural gas, or the push for local government autonomy and the recently submitted Fiscal Reform Bills to the National Assembly, only the discerning will understand that a systematic effort to entrench federalism is taking shape in Nigeria, Wale Igbintade writes

The Lagos State Government is in a joyous mood over the Supreme Court’s judgement annulling the National Lottery Act and reaffirming the constitutional authority of state governments to regulate lotteries and gaming activities within their jurisdictions.

In a judgement delivered penultimate Friday in Suit No. SC/1/2008 between the Attorney-General of Lagos State and others and the Attorney-General of the Federation and others, the apex court while granting all the reliefs sought by the state held that revenues accrued to the federation through the National Lottery Commission from the regulation and royalties of lottery and other online games is in reality within the Residual Legislative List, exclusive to states to regulate and generate revenues from.

The decision, viewed by observers as a watershed, introduces a newer perspective into the conversation on fiscal and legislative federalism in the country.

In a statement issued last Sunday by the Commissioner for Information and Strategy, Mr. Gbenga Omotoso, he described the judgement as “a historic victory for the rule of law, federalism, and the constitutional rights of states.”

“This judgement reinforces the principles of true federalism, empowering states to chart their path for effective regulation. The judgement is a vindication of the consistent belief of President Bola Ahmed Tinubu, regarding the nation’s quest for true federalism. It is gratifying to see that the restructuring battle he has led is coming to life during this administration,” he said.

Just when the state was jubilating over the judgement, the same apex court delivered another judgement striking out a suit by the governments of the 36 states of the federation seeking to among others, compel the federal government to account for its earnings from the sale of liquefied natural gas, natural gas liquids, and related products since 1999.

In a unanimous judgement, a seven-member panel of the court, presided over by Justice Uwani Abba-Aji held that the court lacked the original jurisdiction to hear and determine the suit, marked SC/483/2020, which has the Attorney General of the Federation (AGF) as the sole defendant.

The state governments had asked the court to direct the federal government to render an accurate and true account of the total income/profit/dividend, etc, earned by it from Nigeria’s participation in the business of liquefying and selling of liquefied natural gas, natural gas liquids etc, through its shareholding in the Nigeria Liquefied Natural Gas Limited, held in the name of Nigerian National Petroleum Corporation (NNPC) since October 9, 1999, when the first cargo of liquefied natural gas left the shores of Nigeria till date; and to pay same into the federation account for appropriation and redistribution to the 36 states of the Federation and the Federal Capital Territory in the manner prescribed in Section 1 of the Allocation of Revenue (Federation Accounts, etc.) Act CAP A15 LFN 2004.

In the lead judgment, Justice Mohammed Lawal Garba upheld the preliminary objection raised against the suit by the AGF and held that the subject of the case had been dealt with by the Supreme Court in its earlier decision in the case of the Attorney General of Bauchi State against the AGF.

Whether the two judgements mentioned above, the local government funds delivered by the court last June, or the Fiscal Reform Bills recently sent to the National Assembly for passage by President Tinubu, all were part of the pool that makes up the monthly national cake distribution known as the Federal Accounts and Allocation Committee (FAAC).

They also show that gradually, a lot of states would lose a significant portion of their shares of FAAC allocation, which is undoubtedly the biggest source of their revenue.

In June, the Supreme Court, in a suit filed by the federal government, scrapped the states and local government joint account which before then entrusted local government funds in the hands of their respective states.

Similarly, if the Tax Reforms Bills, particularly the Value Added Tax (VAT), which forms a chunk part of the non-oil revenue, currently being shared based on equity, derivation and population formula among federal government, states and local governments, is now to be shared based on derivation or consumption or both, it would deny some states of free resources from the centre.

Under the current VAT Act, revenue is allocated as follows: 15 per cent to the federal government, 50 per cent to states and the FCT, and 35 per cent to local governments. Right now, VAT is 7.5 per cent even though the new law is proposing 10 per cent VAT next year and 12.5 per cent by 2026.

But under the new proposal, the distribution would shift to 10 per cent, 55 per cent, and 35 per cent for the same respective tiers, with a critical twist; 60 per cent of the VAT revenue would be distributed based on derivation. This means that where VAT is collected becomes as crucial as the amount collected, potentially favouring regions where consumption activities are concentrated.

The Northern States Governors’ Forum and the traditional rulers from the region had rejected the proposed VAT bill, which they argued would disproportionately harm the northern region and other sub-national entities.

Also, the National Economic Council (NEC) led by Vice President Kashim Shettima, had suggested that the tax reform bills should be subjected to additional scrutiny, but President Tinubu said it should be allowed to pass through legislative processes.

This is why analysts feel that if the chain of events are put together, maybe a systematic federalism is taking shape in Nigeria. They advised state governors to think outside the box on how to generate revenue instead of always relying on FAAC, adding that the era of free money from the centre may just be eluding them.

On the Tax Reform Bills, for instance, on Friday, while speaking during an interview with BBC Hausa, Borno State Governor, Babagana Zulum, voiced strong concerns over the tax reform bills, warning that it could have devastating consequences for the northern region and other parts of the country. He alleged that the bill is structured to disadvantage certain regions of the country.

Zulum also criticised the speed with which the bill is progressing through the legislative process, drawing comparisons to the Petroleum Industry Bill (PIA), which took nearly two decades to pass. He warned that if the bill is passed, Northern states would struggle to implement developmental projects, including paying salaries.

But speaking during the debate for the passage of the bill in the Senate last week, Senator Seriake Dickson, auged that the VAT bill will encourage states to be more productive and encourage governors to create an enabling environment for economic activities in their respective states.

He added that there was nothing wrong with the sharing formula of VAT since each state will get a percentage of what is consumed within their territory.

For Shettima Dan’Azumi, he feels that the Supreme Court judgments and Tax Reform Bills would make most states in the North to receive a shorter allocation. He added that if VAT is to be shared based on derivation, then most of the corporate headquarters of businesses where the remittance of VAT takes place are far away from the region.

“Had we, northerners, been thoughtful and proactive, we would have prepared for this time,” he said. “We would have confronted the issue of restructuring with strategy rather than our usual rejectionist attitude, to achieve it on our terms and put a timeline for gradual implementation to minimise its impact. With our sell-out NASS members, who either do not appreciate where all this is headed or have been bought to look away, it’s only a matter of time.

“Our FAAC reliant States will receive a shorter allocation. If VAT is to be shared based on derivation, then most of the corporate headquarters of businesses where the remittance of VAT takes place are far away from the north. What if it’s to be shared based on consumption? The follow-up question is: how do you determine the end users when you don’t have the data to prove where it is consumed? Even if this data exists, most of our businesses in the north, including Kano State, are not formal businesses, so their distributors are in Lagos and other southern states. Our traders are running away from the institutionalisation of corporate governance framework in their businesses that will give them the capacity to deal with manufacturers and wholesalers directly to properly document their dealerships. We are simply traders.

“Lottery is worse because the majority of our states think the whole business is haram. But wait, is it not a double standard that you are operating a secular state, collecting VAT revenue generated from breweries and royalties from casinos, including the lottery for all these years while still believing it’s haram? At least, it will soon be over, and we shall stick with halal revenues.”

Dan’Azumi advised the North to wake up on governance and development issues, adding that the culture of electing clueless governors, and the dominance of corrupt and soulless political class must end.

He stressed the need for the governor to pay more attention to manpower and skills development policies, and reform education systems, saying that is what the issues boil down to.

“Education! Our youth must stop social media praise-singing and political sycophancy and embrace education and skill acquisition. Our businesses must also adopt corporate governance, and innovation and be more industrious and forward-thinking,” he concluded.