Petrol subsidy scam, evils of fiscal unitarism

The rulers of Nigeria have a rather strange way of operating seemingly incompatible fiscal and political systems that make them look like the cruel tyrants running China with the rule of the thumb.

Politically, China is known as Stalin’s last stand as it defiantly sticks to the brutal one-party communist old guard dictatorship. China’s communist dictatorship is strangely combined with one of the world’s freest capitalist economic system.

The world’s second largest economy is a capitalist economy run by a tyrannical communist dictatorship that does not tolerate opposition but incongruously condones competition which is the economic equivalent of political opposition.

Right now it is easier to invest in communist China than in democratic Japan.

Nigeria on its part operates an odd combination of fiscal unitarism and political federalism. Nigeria is a federal republic. The federating units are so autonomous that some have brazenly adopted state religion in open defiance of the nation’s constitution. No one in the federal government has protested the brazen rebellion because the states are considered autonomous units capable of making laws for the peace of their citizens.

Ironically, Nigeria strangely practices fiscal unitarism. Its fiscal policy is dictated by the federal government which collects all the federation’s

revenue into an account and shares it among the federating units.

Prior to May, 1966 when Johnson Thomas Umunnakwe Aguiyi-Ironsi, Africa’s most decorated soldier and Nigeria’s first military ruler, promulgated Decree 34 which turned Nigeria into a de facto unitary state, the four regions in the country exploited their natural and agricultural resources and paid tax to the federal government in proportion to their income.

The system stimulated a healthy competition among the regions and boosted their internally generated revenue (IGR). Consequently, northern Nigeria intimidated the world with the legendary groundnut pyramids.

The west produced cocoa which funded free education and construction of the historic Cocoa House. Eastern Nigeria was the headquarters of palm produce. Calaro Oil Palm Estate in what is now Cross River state hosted the largest oil palm processing mill in West Africa up to 1970.

Aguiyi-Ironsi’s Decree 34 killed the fiscal federalism that stimulated the tremendous growth in the federating units. The fiscal unitarism that replaced it remains an invitation to lassitude in the federating units. It retards growth in state economies.

State governors are no longer worried about IGR because the stipend from Abuja at the end of every month is enough to fund their unambitious capital projects while the balance is ploughed into outrageous cost of governance and stupendous opulence of government officials.

The governors have enjoyed fiscal unitarism especially in the days when oil price averaged $105 per barrel. Now petrol subsidy fraud has punctuated the free flow of funds into the federation account.

Nigerian National Petroleum Company (NNPC) Plc is at the root of the calamity befalling state governments as a result of the dwindling stipends from the federation account.

With oil price sailing perilously close to $100 per barrel, Nigeria, an oil exporting country that imports all its refined petroleum products, would be spending something close to N300 billion monthly on petrol subsidy.

The surge in oil price is an insignificant factor in the outrageous cost of petrol subsidy. Nigeria would be spending less than N1trillion per annum on petrol subsidy at current oil price if NNPC was deducting subsidy on the 35 million liters of petrol consumed daily in the country.

Everyone is convinced that NNPC is defrauding Nigeria on petrol subsidy as it claims a phantom consumption rate of 65 million liters per day in an economy writhing under the gruesome pains of 33.3 per cent unemployment rate and inflation rate sailing perilously close to 20 per cent.

Petrol subsidy

fraud has finally stretched the patience of state governors to the limits as a dictatorial fiscal unitarism robs them of almost N1 trillion from the federation account in 2022.

The federal government wielded the unconstitutional powers conferred on it by fiscal unitarism and unilaterally yanked off N950 billion from the sums in the federation account meant to be shared by state governments. The money is state contribution to petrol subsidy.

The governors are openly protesting what they couch in political equivocation as the “fraud in the oil industry”. That is how they express their impotent rage over NNPC’s petrol subsidy fraud.

The governors had all along wanted the burden of NNPC’s brazen petrol subsidy fraud to be shifted to consumers. They urged the federal government to peg the open market pump price of petrol at N411 per liter to discourage smuggling which NNPC blames for the outrageous consumption figures.

The political cost of imposing such arbitrary burden on innocent consumers intimidated the federal government into the hard decision to sustain petrol subsidy. Now the perceived inequity in sharing the burden of petrol subsidy has touched off a showdown between the states and the federal government.

Akin Oyebode, Ekiti state commissioner for finance, protested the federal government imposition on states with very compelling arguments grounded on unalloyed logical coherence.

He wondered why Ekiti that consumes less than one per cent of the fuel imported by NNPC would share the financial burden of subsidy equally with Lagos that consumes 60 per cent of the nation’s petrol.

Petrol subsidy fraud has explicitly articulated the illogicality and economic futility of fiscal unitarism. It is a huge disincentive for competition which is the catalyst of capitalism. People work hard when they know that they would reap the proceeds of their hard work.

Fiscal unitarism allocates a greater chunk of the gains of hard work to those waiting idly on the sidelines and ruthlessly robs those toiling to bake the cake.

Nigeria’s fiscal unitarism is grounded on a failed communist concept that shares resources on the basis of a formula known as: “to everyone according to his need; from everyone according to his might”.

Consequently, Lagos state generates N45 billion monthly to value added tax (VAT) revenue, while Kano generates N9 billion. Kano collects a greater share of VAT revenue than Lagos on the basis of perceived

higher population. The greater might of Lagos inauspiciously feeds Kano’s greater needs.

That formula fails to factor in what Lagos spends to clear the industrial waste generated by the manufacturing firms that paid the VAT from which a state with higher needs collects a higher chunk.

Federal government mismanagement of petrol subsidy fraud has exposed the evils of fiscal unitarism that cannot be treated in isolation. The whole system has to be thrown away to give way to fiscal federalism that would stimulate competition and create wealt

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