The Problems And Prospects Of Revenue Generation In Nigerian Local Government System

Project and Seminar Material for Political Science

The Problems And Prospects Of Revenue Generation In Nigerian Local Government System


Abstract


This study is on the impact of local government finance on efficient service delivery in Nigeria. The study examined the relationship between revenue generation and service delivery. The study used survey research method. The primary data was collected through the use of questionnaire in soliciting information from the respondents about the management of revenue generated and services delivered. Pearson chi-square was used for data analysis to show the relationship between effective management of local government revenue and level of service delivery in the local governments. However, it was found that there is a significant relationship between local government finance and efficient service delivery in Nigeria and there is a significant relationship between internal generated revenue and development in Lokoja LGA


Chapter One


Introduction

Background of the Study

Before the coming of European to African continent, there has been system of revenue generation, which has existed within the various villages and communities according to laid-down principles and cultural ways and regulations governing the generation of revenue. This system is usually guided by the community heads within the community set up or entrust to the clan leaders as it may be delegated. As already mentioned, during the pre-colonial days the leaders of communities generated their tributes in order to enhance the mode of administration whereby the proceeds collected will serve as a sources use in catering for the welfare of the citizens through stabilization functions. As time went on western civilization started to crop into the content of Africa with the western ideology of administration This introduction gave way to the partition of Africa among Britain i.e colonialism, during this era the colonial master introduce the payment of tax as a means of generating “revenue” for the running of the government and other administrative and economic purpose. Nigeria is the most populous country in Africa, with a population of 170 million, 65 percent of whom live in rural areas. In the pursuit of development at the grassroots, local government was created to provide efficient services to dwellers at the local levels. Everywhere in the world, irrespective of the system of government, local government is created to ensure efficient services at local level. In Nigeria, local government is the third tier of government whose major responsibility is to provide efficient services to the rural dwellers, a service that hinges on proper financing. Local government finance is one of the aspects of public finance. It deals with the generation of revenue, expenditure and utilization of financial resources in order to bring the impact of government closer to the people at the grassroots. Put differently, finance is essential at enabling local governments transform the lives of the rural dwellers through the provision of social services and rural infrastructures like the construction and maintenance of rural roads, markets, schools, health centers, etc. Finance is the heart of the major activities of government. Government units at all levels-national, State and Local are daily engaged in the production and distribution of public goods and services in areas such as agricultural extension, education, healthcare, social welfare, security, all of which involve huge amounts of money. The mobilization of the financial resources or revenue to meet the diverse welfare needs of the people has in effect become an important responsibility which governmental authorities have to shoulder. This responsibility not only includes the generation of revenue but also its allocation among competing needs of the local governments. It is within this context that we can appreciate the task of revenue collection at local government level (Abubakar, 1999). Finance, otherwise known as money or fund occupies a very prominent position in organisations, be they private or public. Indeed of the many factors that do affect organizational performances, none is greater than finance. Finance is the engine room of all organizations including local governments (Idahosa and Nchuchuwe cited in Olojede, Fajonyomi and Fatile, 2011). It has become imperative in view of the fact that in recent time, since 1976, the role of the local governments as a veritable instrument for rapid development of rural, and even the urban areas have taken a central stage albeit without a corresponding access to prerequisite financial resources to meet this expectation. Interestingly, the sources of funds for this tier of administrative authority have continued to dwindle over the years with the ascendancy of both the central and state as the key actors in the Nigerian political economy. The local government is relegated to the backstage. Adedokun (2012), clearly made this situation explicit by asserting that “the federal structure of Nigeria constraints local government’s ability to mobilize and use revenue to meet their obligation in a sustainable manner”. He notes further that One of the recurrent problems of the three-tier system in the country is the dwindling revenue generation as characterised by annual budget deficits and insufficient funds for meaningful growth and development. Therefore, it behoves the students, scholars and other stakeholders of public administration to tarry, and ponder on how this meagre financial resource could be properly and effectively harnessed in order to enable local governments implement their constitutionally assigned functions and responsibilities. Undoubtedly, Finance and its prudent management are the bedrock of effective functioning of local government. It is against this backdrop that Tonwe (cited in Lokoja 2009) argues that local government require finance to perform their statutory functions. The ability of the local government to do this is largely dependent on availability of fund, coupled with efficient management which constitutes the required catalyst necessary for timely execution and completion of their development projects. Nigeria’s experience in local government administration, whether in military regimes or in democratic era, has clearly shows that local government is faces with daunting challenges in their mandate to promote development and provides essential services to the rural dwellers. Sadly, local government which is statutorily established to be the closest tier of government to the people is not doing its bidding coupled with the fact that resident population in it is denied the benefits of its existence. The failure of the local governments in the area of services delivery has made the citizens to lose their trust in government as an institution. In some areas, council officials are better known for the harassment of citizens than service delivery (Ajibulu cited in Adeyemi, 2013).

In spite of the increase in total amount of funds available to Local Governments from early 1990s to date, their economic and financial profile have been very poor, relative to its development due perhaps to false declarations of statements of revenue by revenue collector‘s and treasury staff, political instability and lack of socio-political philosophy among others. Mope, (2015) argued that in nominal terms, the allocation which stood at N597.2 billion in 2005 jumped to N1, 379 billion in 2008, reflecting a marginal revenue increase of 130.9%. However, some challenges which served as impediments to Local Governments‘ efforts to generate adequate revenue from various sources. Many factors have been identified to be responsible for the inadequate internal revenue effort. Chief amongst them are corruption and weak machinery for check and balances in the generation of revenues. Preliminary survey has shown that the inability of the local governments to provide adequate services to the people within their areas of jurisdiction is attributed largely to inadequate revenues. The importance of finance and its efficient management in the activities of an local government is of utmost importance this is summed up in the words of Nwanko by saying “finance and it good management are the bed rock of any successful provision of social and welfare services at the third tier level of government. Availability of adequate fund, coupled with efficient financial management constitute the require catalyst necessary for timely execution and completion of special welfare project at the third tier level of government in Nigeria. Meanwhile, Local Government, like any other institution of government, has its own structure, functions and responsibilities. These include financial structure that helps the local government to maintain its system and also to carry out its responsibilities to the people.
Therefore, just as finance is central to other institutions the same thing applies to local governments areas in Kogi State. It is in the light of the above that this research work attempts to shed light on the financial structure of local government areas in Kogi State. This would include; the source of local government revenue, problems and prospects of revenue generation in local government areas of Kogi State.

The federal government control the better parts of Nigeria resources say Okolie and Eze in their words the sharing of the national revenue is done by the apex government which determine what goes to the state and local government. This form of relationship is unequal as the federal government always allocates to itself more money than it does to other tier. This is the more reason why local government areas should try and generate their own revenue for their usage and this research work will give an insight on the way problem and prospect, in generating revenue and as well as overcoming the problems.


1.2 Statement of the Problem

For any local government to excel in its primary function of providing essential service to the people of her locality there is no doubt that she needs a sustainable revenue generation, this, various, local governments in Kogi State have tried to achieve. However, the performance of many local governments in Kogi State is Vis-à-vis their income generation is not exception in this respect. Observation across local government areas in Kogi State show the local government areas have not live up to expectation in providing social amenities and essential service to the people. Linked to this is the internal revenue generation of the local governments in Kogi State which is not properly coordinated. It is for this reason that this research is being proposed or deigned to address the following:

  1. What are the sources of revenue generation in local government areas of Kogi State.
  2. Why revenue generation in lokoja Local Government Area is poor.
  3. How can revenue generation be improved in Local Government areas of Kogi State.

1.3 Objectives of the Study

The main objective of the study is to examine the problems and prospects of revenue generation in Nigerian local government system.

While other specific objectives are:

  1. Determine, the effort of Lokoja Local Government venue generation.
  2. Investigate, the various sources of revenue to local government.
  3. To explain the problem involved in each source of revenue.
  4. Discover the proper and wrong practice in revenue generation.

1.5 Research Hypotheses

The following under mentioned hypotheses will be tested in the course of this research study.

Hypotheses One
  • Ho: Revenue generation cannot bring about development in the local government level.
  • Hi: Revenue generation can bring about development at the local government level.
Hypotheses Two
  • Ho: Internally generated revenue if harnessed cannot be of great contribution to local government areas in the state.
  • Hi: Internally generated revenue it harnessed can be of great contribution to local government areas in the state.

1.5 Significance of the Study

This study is very important because, it will serve as an invaluable material for Lokoja Local Government to identify their various sources of revenue generation. Scholars and student with similar research could also use findings of the study for comparative analysis or for furthering their research work.

The study could also enable local government to tackle their numerous problems that hinder smooth generation of revenue.The study provided the basis for developing various ways of improving revenue generation in Lokoja Local Governments Area and in other local governments‘ areas in Nigerian. With an improved revenue generation, Lokoja Local Government Area (LGA) will be able to meet the demands of the people and will be able to perform their primary functions of provision of essential services more efficiently. The study also revealed the extent to which an improved revenue generation will impact on development generally. The study is an added contribution to the existing knowledge on revenue and service delivery in Local Government and ways to improving the two. The research will also help other researchers who may wish to carry out research of similar nature. Scope and Limitations of the Study This Project focused on the study of local government revenue and service delivery in Lokoja Local Government Area (LGA).


1.6 Scopes and Limitations of the Study

This research topic is supposed to be a general topic not only for Lokoja local government but due to inadequate resources in accessing other local government in Kogi State to get needed fact about their source of income this research is thus restricted to Lokoja Local Government.

Even at state and federal level, they have their various source of income, their peculiar prospects and problems, so the research will be restricted to the problems and prospects of revenue generation in the afore-mentioned local government areas.

Lokoja Local Government is the one of the widest and highly populated local government area in Kogi State. This has caused some transportation problems in reaching some of the districts, the mobile park, the market and some other places where the needed data could be collected. But due to the fact that they are scattered all over the districts, the researcher could not go round the areas. There are also some vital information which many think is secret or kept under secrecy and were not made available for this research work because those information were not released to the researcher. The un-cooperating attitudes of some local government officers and staffs did not in any way help matter as they often find one excuses or the other to avoid question. They do not want to entertain any question.


1.7 Definition of Terms

Administration:

This refers to the government or leadership of a country or state like Nigeria.

Finance:

The management of large amounts of money, especially by governments or large companies.

Financial Management:

Financial management is defined as the act of total management function concerned with the effective and efficient raising and use of funds. As processes and responsibility, financial management consists of decision making regarding the following major activities among others.

  1. Determination of funds requirement of the organization revenue generation and mobilization.
  2. Seeking and obtaining the right amount of funds at the right time for cash flow management
  3. Deploying available funds to the needs of the organization revenue application and control, and
  4. Giving proper stewardship for funds obtained and utilized (Abubakar, 1999)
Internally Generated Revenue (IGR):

This refers to the revenue or money collected by the local government from its internal sources (within the Local Government Area). The internal sources of revenue comprise many major and miscellaneous items aggregated to provide the required fund for financing the enormous functions ascribed to local government as third tier of government (Abubakar, 1999).

Local Government:

An Local Government is defined as Government at the local level exercised through representative council established by law to exercise specific powers within defined areas. These powers should give the council substantial control over local affairs (including staffing) and institutional and financial powers to initiate and direct the provision of services and to determine and implement projects so as to complement the activities of the state, and Federal Government in their areas, and ensure, through the active participation of the people and their traditional institutions, that local initiative and response to local needs and conditions are maximized (Federal Republic of Nigeria, 1976).

Revenue:

This is an income, the total annual income of the local, state and federal government within a particular period of time.

Tax:

A tax can be defined as a compulsory levy or contribution imposed by the government on individuals, cooperate bodies as well as goods and services.

Tax Evasion:

This is an act perpetrated by a tax-payer by seeking to reduce his/her tax liability through illegal means.

Tax Avoidance:

This on the other hand is an effort on the part of the tax payer to take advantage of legal loopholes so as to reduce his/her liability. Tax avoidance is an illegal act.

Tax-Payers:

These are the person, company or cooperate bodies which are expected by law to pay tax.

Rating System:

This involves government giving out it’s assets from time to time base on the annual rent and allocation of the building.

Grants:

This is one of the main source of local government revenue, this could be income from government and international bodies like the world Bank, the United Nation Development project (UNDP) and so on.

Rents and Royalties:

This refers to money paid by mining companies for land on which mining activities are carried out.

Subsidies:

This is another way by which the federal government fund the local governments i.e through reducing and lowering rent of housing and other capital intensive property for local government area.

Recurrent Expenditure:

This is the money spends on day to day activities of the government like, repairs, payment of salaries, wages and interest on public debts.

Capital Expenditure:

This is the money spend on durable project by government on yearly base. Like medical and health facilities, Roads market etc.

Licenses:

This is the right giving to a person, showing he is legally qualify to own a bicycle, cars, and all non mechanical devices.

Statutory Allocation:

This is the money given to the local government as a share of either specific items or the totality of national drives revenue.


1.8 Organization of the Study

This research work is organized in five chapters, for easy understanding, as follows

  • Chapter one is concerned with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study.
  • Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature.
  • Chapter three deals on the research design and methodology adopted in the study.
  • Chapter four concentrate on the data collection and analysis and presentation of finding.
  • Chapter five gives summary, conclusion, and recommendations made of the study.

Chapter Five


Summary, Conclusion and Recommendation

5.1 Introduction

It is important to reiterate that the objective of this study was the problems and prospects of revenue generation in Nigerian local government system.

In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in evaluating examine the problems and prospects of revenue generation in Nigerian local government system.


5.2 Summary

This study was undertaken to examine the problems and prospects of revenue generation in Nigerian local government system. The study opened with chapter one where the statement of the problem was clearly defined. The study objectives and research hypotheses were defined and formulated respectively. The study reviewed related and relevant literatures. The chapter two gave the conceptual framework, empirical and theoretical studies. The third chapter described the methodology employed by the researcher in collecting both the primary and the secondary data. The research method employed here is the descriptive survey method. The study analyzed and presented the data collected in tables and the hypotheses were tested using the chi square to test hypothesis. While the fifth chapter gives the study summary and conclusion.


5.3 Conclusion and Recommendations

This study reveals that in spite of the increase in total amount of funds available to Local Governments from early 1990s to date, their economic and financial profile have been very poor, relative to its development due perhaps to false declarations of statements of revenue by revenue collector‘s and treasury staff, political instability and lack of socio-political philosophy among others. Mope, (2015) argued that in nominal terms, the allocation which stood at N597.2 billion in 2005 jumped to N1, 379 billion in 2008, reflecting a marginal revenue increase of 130.9%. However, some challenges which served as impediments to Local Governments‘ efforts to generate adequate revenue from various sources. Many factors have been identified to be responsible for the inadequate internal revenue effort. Chief amongst them are corruption and weak machinery for check and balances in the generation of revenues. Preliminary survey has shown that the inability of the local governments to provide adequate services to the people within their areas of jurisdiction is attributed largely to inadequate revenues.

We found that Revenue generation can bring about development at the local government level and that internally generated revenue if harnessed can be of great contribution to local government areas in the state. Having established that the more the revenue generated the more services are provided to the citizenry, more revenue sources should be identified and adopted in order to increase and improve the revenue base of the local governments. The present revenue sources should also be fully tapped to improve the revenue base of the local government. Here, it is strongly recommended that the local government should adequately be involved in commercial transportation. By this, it means that commercial vehicles (cars, buses and trailers) should be purchased and operate, not on a subsidised bases but purely on commercial bases i.e. profit maximisation. However, this commercial vehicles should not be managed by any official or any department of the local government council, but a management consult be given to manage. Diversification of income sources should be made in the two local government under study. However, Lokoja local government should be more diversified. This diversification could be done even in terms of agriculture in addition to the commercial undertakings. For Lokoja to be diversified, Sound policies should be made that can attract investors especially with regards to commercial farming and food processing.


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