The document discusses fiscal decentralization and its impact on poverty reduction in Nigeria, highlighting that while sub-national governments are essential for service delivery, poverty rates remain high despite various policies enacted. It notes that fiscal decentralization has not alleviated poverty effectively, with a significant portion of revenue sources controlled by the federal government, leaving local governments with limited financial means. Recommendations include monitoring sub-national spending, ensuring legal frameworks are in place, and increasing capital expenditure to improve poverty outcomes.

1. FISCAL DECENTRALIZATION AND POVERTY REDUCTION
IN NIGERIA
It is absolutely vital to say sub national governments (State government and Local government)
in countries that practice federal system of government are critical to the development process.
To achieve SDGs, sub national governments will have to be engaged very strongly in terms of
delivery of service.
Dr. Ngozi Okonje Iweala
The above statements motivated my chosen this topic ‘Fiscal Decentralization and Poverty
Reduction in Nigeria’.
Introduction
Poverty is a critical developmental issue that most developing countries battle with. Its
negative impact on the welfare of individuals and economic development in general explains the
continuous combative approach of countries towards alleviating poverty. Several policies such as
fiscal decentralization have been adopted by countries to combat poverty. However, while such
policies have significantly reduced the rate of poverty in developed countries such as the OECD
countries while developing countries especially in Sub-Saharan Africa still experience high
poverty rates in spite of these policies.
The global call for adoption of decentralization is due to its benefits to national
governments (Manor, 1999; Blair,2000; Crook and Sverrisson, 2001; Francis and James, 2003)
and its direct expected link to poverty reduction theoretically (World Bank, 2001; Jutting et al.,
2005). This can be seen in the move that occurred in the 1980s when an unprecedented wave of
decentralization swept across Asia, Latin America and Africa (Crawford, 2008). Conceptually,
Fiscal Decentralization Policy (FDP) is an aspect of intergovernmental fiscal relations which
depicts the delegation and/or devolution of fiscal authority – the decision making power on the
composition of public revenue and expenditure – to sub-national governments. Thus fiscal
decentralization is the resignation of fiscal powers from the central government to lower tiers of
government, vis-à-vis local councils and states.

2. Current Trend in Nigeria
From indicators, it is obvious that with the fiscal decentralization policies in Nigeria,
poverty incidence is still high. Specifically, in the last two decades in Nigeria, there has been
little or no progress made in alleviating poverty despite the numerous attempts made and
investments into many programmes established for that purpose. For examples, Canagarajah, et
al., (1997), reported increased level of poverty over the period spanning from 1980s and 1990s in
Nigeria and inequality was established with an increase in the Gini coefficient from 38.1 per cent
in 1985 to 44.9 per cent in 1992. Recently, in February, 2012, the National Bureau of Statistics
indicated that the consumer price index for all items was 130.5. From this scenario, it is clear that
the marginalization of the people at the grass root level by the central government is high;
indicating that effective fiscal decentralization is yet unequal while poverty remains high.
Nigeria’s Tax Jurisdiction and Revenue Sharing principle and Poverty Incidence
In an ideal society, each tier of government should be assigned revenue/tax sources that
are commensurate with its responsibilities, especially at the local government levels to be able to
cater for the impoverished masses at the grass root levels.
Table 1.1: Nigeria`s Tax Jurisdiction
Federal Government State Government Local Government
1. Companies Income
Tax
Personal Income Tax (on
residents of the State)
Tenement rate
2. Petroleum Profits Tax Capital Gains Tax (on
individuals only)
Shop and Kiosks Rates
3. Value Added Tax Stamp Duties (on individuals)
only
Liquor Licence Fees
4. Education Tax (on
Companies only)
Road taxes, e.g., Vehicle
Licences
Slaughter slab fees
5. Capital Gains Tax (on
Corporate Bodies and
Abuja Residents)
Betting and Gaining Taxes Marriage, Birth and Death
Registration Fees

3. 6. Stamp Duties (on
Corporate Bodies)
Business Premises and
Registration Levies
Street name, Registration Fees
(excluding state capital)
7. With-holding Tax (on
Companies)
Development levy (Max of
#100 per annum on taxable
individuals only)
Market/Motor Park Fees
(excluding State owned
markets)
8. Personal Income Tax
(on personnel of the
Armed Forces, Police,
External Affairs
Ministry and Residents
of Abuja)
Street Name Registration Fees
(State Capital Only)
Domestic Animal License
Fees
9. Mining Rents and
Royalties
Rights of Occupancy Fees
(State Capital Only)
Bicycle, Trucks, Canoe,
Wheelbarrow, Carts and
Canoe Fees
10. Customs Duties (i.e.,
Import Duties and
Export Duties
Market fees (where market is
financed by State
Government)
Right of Occupancy fees
(excluding State Capital)
11. Excise Duties Miscellaneous revenues (e.g.,
rents on property)
Cattle Tax
Source: Author’s Computation from the Federal Ministry of Finance, and 1999 Constitution of
the Federal Republic of Nigeria and other Legislation
It is evident from the above table that all the major sources of revenue are-petroleum
profits tax, import duties, excise duties, mining rents and royalties, and company income tax-
come under the jurisdiction of the federal government. With the exception of personal income
tax (at the state level) and property tax (at the local government level) whose potentials are yet to
be fully tapped, the state and local governments have jurisdiction over minor and poor yielding
revenue sources, This has led to serious overdependence of lower levels of government on the
federal level`s finances.
On the other hand, poverty is still pervasive in Nigeria. Available statistics reveals that
the poverty incidence in Nigeria has been on the increase since the 1980s. As reported by the

4. UNDP (2010), between 1980 and 1996, the percentage of the core poor rose from 6.2 percent to
29.3 percent, and declined to 22.0 percent in 2004. According to Omotola (2008), about 70% of
the population now lives in abject poverty.
There is the geographical dimension of poverty in Nigeria. According to Aigbokhan
(2000), poverty is higher in the rural areas than in urban areas. In 2004, the urban population
with access to water was 67 percent, while it was 31 percent in the rural areas. In terms of
sanitation services, 53 percent of the urban population had access to sanitation services and 36
percent in the rural areas.
Table 1.2: Human Development Index, 1975-2005. Ranked Highest to Lowest in 2005
Rank Country 1975 1980 1985 1990 1995 2000 2005
151 Zimbabwe 0.55 0.579 0.645 0.654 0.619 0.513
152 Togo 0.423 0.473 0.469 0.496 0.514 0.529 0.512
153 Yemen 0.402 0.439 0.473 0.508
154 Uganda 0.42 0.434 0.433 0.48 0.505
155 Gambia 0.29 0.436 0.472 0.502
156 Senegal 0.343 0.367 0.401 0.428 0.449 0.473 0.499
157 Eritrea 0.435 0.459 0.483
158 Nigeria 0.321 0.378 0.391 0.411 0.432 0.445 0.470
159 Tanzania 0.421 0.419 0.433 0.467
Source: Central Intelligence Agency (CIA), 2009
An analysis of the context reveals that poverty holds sway in the midst of the plenty.
Nigeria is the eighth largest oil producing country in the world, but it harbors the largest
population of poor people in sub-Saharan Africa and is ranked 158th on the human development
index. There is pervasive high-income inequality, which has perpetuated the concentration of
wealth in the hands of a few individuals (Action Aid Nigeria, 2009). This is an iniquitous
practice, which the Nigerian state must redress.

5. Conclusion and Recommendation
The primary measure of FDP is the share of sub-national government (State and Local
Governments) expenditure in the total government (Federal, State and Local governments)
spending (FDP-expenditure) and the share of sub-national government (State and Local
Governments) revenue in the total government (Federal, State and Local governments) revenue
(FDP-revenue) in Nigeria as well. FDP in Nigeria may be marred by several irregularities (due
to weak institution) and thus presents an opportunity for exploitation by sub-national bureaucrats
and elites. Thus FDP seems to possess a potential to worsen the poverty situation in Nigeria if
not monitored properly.
It is therefore suggested that sub-national public spending requires monitoring and
scrutiny, and the federal government must ensure that FDP-compatible institutional and
functional legal framework are put in place. Also, it is suggested that government at all levels
must endeavour to increase her expenditure on capital projects which have a positive relationship
with poverty reduction in Nigeria.
Salami Afolabi
amb.afolabi@gmail.com