•Navigating the dynamics of the policy decision of AGF v. AG ABIA & 35 ORS.
For the past two decades, funds allocated to States of the Federation (“States”) and Local Governments from the Federation Account are deposited into a joint account intended for both levels of government. According to Section 162 of the Constitution of the Federal Republic of Nigeria 1999 (the “Constitution”), each Local Government is supposed to receive its rightful share from this account. However, many State Governors have deviated from this system by either withholding these funds entirely or disbursing only a portion thereof. This practice has caused significant hardship for citizens who are deprived of the benefits and services that democracy at the grassroots level should provide.
SYNOPSIS OF THE SUPREME COURT DECISION
In a landmark decision delivered by the Supreme Court of Nigeria (“the Apex Court”) on July 11, 2024, in the case of Attorney General of the Federation v. Attorney General of Abia State & 35 Ors (the “Decision”), the Court reinforced the autonomy of Local Governments in Nigeria, affirming their status as a distinct third tier of government. This significant judgment addressed crucial constitutional issues surrounding the financial independence of local governments. The Decision arose from an Originating Summons filed by the Federal Government of Nigeria (“FGN”) through the Honourable Attorney-General of the Federation (“HAGF”). The Originating Summons sought to determine several key questions, including whether it was constitutional for State Governors to withhold funds allocated to Local Governments from the Federation Account, and whether Local Governments are entitled to direct payments from the Federation Account given the persistent failure of State Governments to disburse these funds. The Decision upheld the principle that Local Governments are constitutionally entitled to receive their share of funds directly, reinforcing their financial autonomy and independent role within Nigeria’s federal structure. In its considered and purposive decision, the Court upheld the arguments presented by the AGF and concluded that:
- the retention and use of funds allocated to Local Governments from the Federation Account by State Governments is both unconstitutional and illegal and contravenes the principles intended to ensure that these funds benefit the Local Governments directly;
- the FGN has the authority to make direct payments of allocations to Local Governments from the Federation Account, but these payments can also be made through State Governments, provided that the funds are fully and promptly transferred to the Local Governments;
- under Section 7(1) of the Constitution, Local Governments are recognized as the third tier of Government and the leadership of Local Governments must be independent and democratically elected.
In response to the Defendants’ argument—presented by the Attorneys-General of the States—that Section 162 (5) of the Constitution mandates that funds from the Federation Account be paid to States for the benefit of Local Governments, the Court applied a purposive interpretation of this provision. The Court reasoned that the fundamental aim of the law is to ensure that funds allocated to Local Governments reach them. By applying the mischief rule of interpretation, the Court considered historical constitutional provisions that allowed direct payments to Local Governments from the Federation Account. It also noted that the shift in practice, as seen in the current Constitution, was intended to address logistical challenges and reduce the costs associated with Local Government officials traveling to Abuja for fund collection. In the light of its reasoning, the Court directed the FGN to ensure that funds allocated to Local Governments are paid directly into the accounts of democratically elected Local Government Councils. The Decision underscores the necessity of preserving the financial autonomy and operational effectiveness of Local Governments within Nigeria’s federal structure.
FISCAL IMPLICATIONS OF THE DECISION FOR LOCAL GOVERNMENTS
- Direct Payment from the Federal Account Allocation Committee (“FAAC”)
The Revenue Mobilization Allocation and Fiscal Commission (“RMAFC”) is the federal agency responsible for overseeing the revenues accruing to the Federation Account and ensuring their equitable distribution. RMAFC, through FAAC, manages the allocation of federal revenue to various levels of government. According to the Decision, RMAFC will now be responsible for directly distributing federal revenue to all 36 States and 774 Local Governments in Nigeria each month. The Decision marks a significant shift with several important implications. First, the direct payment mechanism will reinforce government policies at the local level, allowing Local Governments to have greater control over their financial resources. This change is expected to foster the development of more effective structures within the Local Governments for managing and utilizing the funds allocated to them. Additionally, the Decision will facilitate the delivery of essential services and infrastructure, such as healthcare and public utilities, directly benefiting local communities. By bypassing State Governments in the disbursement process, Local Governments will be better positioned to ensure that the benefits of federal allocations reach their intended recipients promptly and efficiently. Furthermore, the Decision will reduce the reliance of Local Governments on State Governments, thus promoting greater financial autonomy. This shift is likely to enhance the operational independence of Local Governments, enabling them to function more effectively and respond more directly to the needs of their communities.
- Revenue Generation
As a distinct third tier of government, Local Governments are empowered to collect various types of taxes to fund their operations and provide services to their communities. The specific taxes that Local Governments are authorized to collect are detailed in Part III of the Schedule to the Taxes and Levies (Approved List for Collection) Act, LFN 2004. These include:
- Shops and Kiosks Rates
- Tenement Rates
iii. Slaughter Slab Fees
- Marriage, Birth, and Death Registration Fees
- Naming of Street Registration Fees
- Right of Occupancy Fees on Lands in Rural Areas
vii. Market Taxes and Levies
viii. Motor Park Levies
- Wrong Parking Charges
- Signboard and Advertisement Permit Fees, etc.
In light of the Decision, Local Governments will now have the authority to collect and manage these taxes independently, without having to remit them to State coffers. This new-found autonomy means that Local Governments can directly utilize the funds they generate to address local needs and implement community projects. Additionally, this change will reduce undue interference from State Governments, allowing Local Governments to operate with greater financial independence and efficiency. This increased control over revenue generation and expenditure will enable Local Governments to better serve their communities and enhance local development.
WHAT DOES THE FUTURE HOLD ON THE ACTUALIZATION OF “TRUE AUTONOMY”?
With the Supreme Court Decision in the above case, the 774 Local Governments in Nigeria are now better positioned to enjoy the benefits of fiscal autonomy. This would allow the Local Governments to generate and manage their own revenue, which has the multiplier effect of enhancing their financial independence and reducing reliance on State allocations.
A LOOMING CHALLENGE
As laudable as the Decision clearly is, unless Local Governments urgently put in place clear-cut and functional mechanisms for the generation and management of their revenue, the actualization of true fiscal autonomy may remain a mirage. To that end, it may be useful for the Local Governments to entrench strengthened legal frameworks and governance policies in their practices and procedures to reduce the instances of abuse and ensure that the benefits of a truly fiscally autonomous third tier of government are attained. If Local Governments can effectively manage their finances, they would have strategically positioned themselves to effectively fulfill their constitutional responsibilities and improve the quality of life of their constituents. Be that as it may, there still exists the lingering issue of how these Local Governments would repay debts that may have accrued to various State Governments. In order not to stifle their new-found fiscal autonomy, it would be useful for the Local Governments that are indebted to their respective State Governments to devise pragmatic approaches to repay any debt owed to the State Government. To address the issue of owed funds, Local Governments may need to engage in negotiations with their respective State Governments to establish clear repayment schedules and mechanisms. This may entail the affected Local Governments authorizing RMAFC to deduct a percentage of their monthly allocation as a first line charge and remitting the same to the State Governments until the liquidation of the indebtedness of the affected Local Government. Furthermore, the indebted Local Governments may devise a collection mechanism wherein a percentage of the taxes and rates collected by the Local Governments are directly remitted to the coffers of the State Governments in satisfaction of their indebtedness to the State Governments.
By the combined provisions of the Constitution of NBA and the Fundamental Rights (Enforcement Procedure) Rules, every legal practitioner is an activist empowered by law to campaign for the rule of law, promote fundamental rights and protect the citizens. Consequently, part of the solution to the issues highlighted so far is for lawyers individually and collectively through the NBA, to file cases in court to challenge the overbearing powers of the states over the local government, especially in the area of legislations which have encroached upon the constitutional powers of local governments.
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