THE CALL by the Lagos State Government (LASG) for the application of a derivation principle to distribute revenue from Value Added Tax (VAT) in the country deserves commendation. First, the suggestion draws out the significant position of the state as the industrial and economic hub of Nigeria, and the subsequent need for enhanced investment in infrastructure. Second, the suggestion, if heeded, is a potential stimulus for the state concerning internal revenue drive and fiscal federalism.Lagos State predicates its hope for the adoption of the derivation principle, already in use for crude oil proceeds in oil producing states, on its contribution of over 60 per cent of the VAT pool shared monthly at the Federal Accounts Allocation meeting. This distribution syndrome, which is the classic melting pot at the heart of Nigeria's ailing engagement with federalism has attracted numerous observations.Lagos has for quite a while, and for good reasons, contended that the state merits a special statutory revenue status; a contention that has been conveniently ignored through extant political polarisation. The argument, inter alia, runs thus: its land space caters for 21 million Nigerians, who contribute about US$50 billion, about 20 per cent of national Gross Domestic Product; hosts over 10,000 commercial enterprises, and bears the burden of Nigeria's busiest air and sea ports. Against its perceived non-compensation for these macroeconomic inputs for Nigeria, the Lagos State Government has sought for a more empirical solution as offered by the proposed derivation principle for VAT, for which a monthly average of about N30 billion is collected from Lagos State alone.The economics of the government proposal, when viewed in its quest to address its very obvious infrastructural gap, as well as major construction work towards her advertised ambitious mega city vision, is compelling. With a population of 21 million and counting, a projected growth of six per cent per annum, the requirement of the state for every aspect of municipal services ' roads, transport, sewage treatment, housing, security ' far overshadows the multimillion dollar, multilateral loans and the donor agencies funding. Lagos State Government says it has internally generated revenue to meet 70 per cent of its 2012 budget revenue and still needs to plug the shortfall.In recent times, the state has enjoyed considerable acknowledgment regarding relatively good governance in its performance, engagements and attitudes. Within the past decade, the state government has differentiated itself as an oasis in the country where drift and bleary visions of numerous state governments are apparent. Lagos appears focused on public sector targets and performance measurement and has shown capacity. Its proposal for reappraisal of the VAT sharing format should also be viewed against this profile.The VAT is a buyer or consumption tax, and for Lagos, with the combination of very high population, higher per capita income and industrial hub of Nigeria and the ECOWAS region, it has the economic argument as a major contributor to the VAT pool. Many states are mere net collectors from the monthly federal accounts, and are for all purposes destitute in their financial affairs. Even internally generated revenue schemes, so fundamental to sub-national government, are impossible to levy or collect in many of the states. In terms of development, many states are encumbered in various ways, and are unviable in their present status.This logic of contributors to the Federation Account pool receiving more than the current quota would however be tested beyond the economics as Lagos must set itself an advocacy role to convince the rest of the states, outside of the oil producing areas. This is the time to explore this derivation option further constitutionally and diplomatically.For completeness, it would be appropriate too that all other derivatives be put up in the pool and treated in similar format. A current assessment of this suggestion is that many other economic assets ' for example, waterways and solid minerals exploration, are on the exclusive Legislative list and while only a constitutional overhaul may free up the inconvenience, the Federation Account, which is the sole beneficiary, would devise an allocation for all monies under a fresh derivative formula. More items other than only VAT proceeds can then be listed for discussion.In the instance where natural resources are exploited and appropriated to favour natives, friends and neighbours at the monthly allocation, Lagos in contrast, is the beneficiary of causal migration of population as its biggest counter bargaining chip. How about applying the same principle to the solid mineral producing states around the country, or in the water bearing states hosting hydroelectric dams' This may ginger the country towards a long overdue deliberation on the essence of true fiscal federalism in current day Nigeria.An anachronistic situation exists where state governments are idle as the mineral wealth is unexploited and the benefits remain under the soil or waterbed. In such an instance, the people suffer every epidemic, while social and hard infrastructure remains unattended. The feeble attempt at government and governance is dependent on deficit spending, which is all a yoke. The toga of growing the loan stock ought to be replaced in an orderly form through initiatives on derivation proceeds.There should be a theory of resource allocation that would be politically neutral and efficient. The call by Lagos State Government comes in good time, on the eve of a constitutional review. It also serves as a wakeup call for all the states to think out of the box and exert competitive advantage through a refined approach.
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