Problem And Prospect Of Revenue Generation In Nigeria

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Problem And Prospect Of Revenue Generation In Nigeria


The importance of revenue generation by local government areas cannot be over emphasized. This is because Local Government Areas carry out the various developmental projects as well as providing social amenities to the people through revenue. But of recent, the drastic reduction of fund at the disposal of Local Government Area made it difficult for them to carryout their major function. His shortage of fund from the basis for this project work which is centred on the problem and prospects of revenue generation in Kogi State Local Government Area choosing Lokoja as my case study.

Chapter One

1.0 Introduction

1.1 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. It is understood that the term “revenue” was referred to as tribute being gathered or given from various clan heads that made up the community within a particular environment or geographical demarcation that normally make up a political location.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.

It is believed that the only reasonable form of development is the development that comes from within, development that comes through the will and desires of the people. The ideas behind the creation of Local Government in Nigeria are that the people at the local level are assumed to have the fullest awareness of their needs. Every local jurisdiction has its unique economic, social and physical characteristics and its historical tradition which are better understood by its people. Thus, the Local Government Areas are created to provide the services which the Federal and State Governments cannot easily undertake due to their remoteness from the local communities (Uhunmwuangho and Epelle, 2008). Nigeria runs a federal system of government that consists of three tiers, that is, the federal, state and local governments. Each of these spheres has constitutionally assigned responsibilities to discharge. According to Orewa, (1983:96), it has been generally agreed that no central government can satisfactory conducts administration wholly from the capital through civil servants, based at the headquarters. Thus, the need for a form of decentralization, according to him, such as will enable the government to reach out to the people at the local level, becomes imperative. Alluding to the concept of Local Government therefore, Tonwe (2007:1) states that with the amount and variety of work to be done country-wide by government, it is impossible for a single authority to undertake directly their performance and the government too does not have the requisite knowledge of all the diverse problems which are local in nature. Therefore, one of the recurrent problems of the tiers of government in Nigeria is the ever dwindling revenue generation, discernible from budget deficits and paucity of funds for robust economic growth and development. Local Governments, which is our focus in this study, are the nearest governments to the people at the grassroots in Nigeria. In fact, 70% of the Nigerian population reside in the Local Government areas. Consequently it has the responsibility to articulate the needs of these people and formulate plans and strategies to realizing them. As time went on western civilization started to crop into the content of Africa with the western ideology of administration introduced to Africa. This introduction gave way to the partition of Africa among Britain i.ecolonialism, 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.

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.The term “Local Government Administration in Nigeria has attracted serious attention both nationally and internationally since the great reform of 1976. Incidentally, it was this reform in question that opened the rural area to any meaningful development in terms of in-put that could be garnered from the federation account. The military administration of Murtala/Obasanjo (1976-1979) is usually regarded as a period of watershed in the anals of local government administration in Nigeria. This was the first time a concerted effort was made by the federal government to brighten the future of local government. Local Government was not only accorded its pride of place in socio-economic well-being of the country, it was also seen as a way of bringing government closer to the people. Consequently, a uniform system known as single tier structure was adopted throughout the country; this uniformity can be conceptualized in terms of: The functions of local government; the structure of the local governments; the financial resources of the local governments; relationships with state government; and law enforcement processes and procedures (Ola: 84, 87) The Nigeria 1976 Local Government Reform and the subsequent one that follows are geared towards making local government bedrock for socio-economic and political development. Somehow, the 1999 constitution seems to have overridden the gains and aspirations of this tier of government with the exclusion of local government from the constitution. This phenomenon has become a critical issue since the beginning of the Nigeria Fourth Republic.

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 government 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 co-ordinated. 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 is revenue generation in Kogi State Local Government Areas is poor.
  3. How can revenue generation be improved in Local Government areas of Kogi State.

1.3 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.

1.4 Purpose of the Study

This study is to:

  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. Proffer possible solutions to the problems base on findings and factual analysis.
  5. Discover the proper and wrong practice in revenue generation1.6

1.5 Research Hypothesis

The research will test the following hypothesis as follows:

  1. HO: That revenue generation cannot bring about development in the local government level.
    HI: That revenue generation can bring about development at the local government level.
  2. 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 governments areas in the state.

1.6 Scope or Delimitation 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.

1.7 Limitation and Constraints

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 unco-operating 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.

1.8 Definition of Terms


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


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.


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.


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 Royalities:

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


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.


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.

Local Government:

This is the government at the grassroots level, the lower level of government in unitary political setup and lowest level of government in a federal system of government.

Chapter Five

Summary, Conclusion and Recommendation

5.1 Introduction

It is important to ascertain that the objective of this study was to examine the problem and prospect of revenue generation in Nigeria.

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 addressing the challenges of revenue generation in Local governments.

5.2 Summary

This present study has critically examined local government’s revenue generation and utilization in Nigeria. Local Governments in Nigeria receive statutory allocation from both the Federal and State governments. They also generate internal revenues through taxes and fees etc. It is opined that expenditure assignments should match with revenue generating powers in order for local governments to discharge their functions effectively. In essence, revenue and expenditure decentralization must support local government public revenue profile. Local government revenue generation in Nigeria needs restructuring so that taxing powers be given to Local authorities and also it should be allowed to share major tax bases with other levels of government to enable enough independent funds for development.

5.3 Conclusion

This study identified and examined various sources of revenue generation as well as the problems of revenue generation in Nigeria. The study revealed that local government in Nigeria are confronted with several problems which include corruption on the part of revenue collectors, lack of bye-laws on revenue tariff, farming out of revenue base on political patronage and so on. It has become obvious that Corruption is the major issue in the developmental study of the local government councils in Nigeria. It is therefore believed that the local governments could do better in internally generated revenue if council officials honestly and aggressively do their job. But more often, these officials are involved in corrupt practices by short changing the council either by printing their own personal receipt booklets or misappropriate council funds. The fact that such culprits are not decisively dealt with accordance with extant rules and regulations have encourage other to be the same line of corruption, resulting in the ever more dwindling internal revenue profile of the council

5.4 Recommendation

The following recommendations are proffered for the amelioration of the problems of revenue generation in local government administration in Nigeria:

  1. Revenue collectors should be checked on regular basis by the Internal Auditor of the council in consonance with the provisions of financial regulation and anyone found guilty of corrupt practices should be punished accordingly.
  2. The use of council staff should be encouraged. Enough staff should therefore be employed by the council to man the various revenue units of local government.
  3. Adequate legislation on revenue tariff is very necessary. Therefore, the council should ensure that its legislative body makes an up-to-date tariff to forestall instances of use of discretion by revenue collectors.
  4. Revenue Agents should be abrogated and replaced with local governments employed staff.
  5. In order to avoid tax ovation by some people, local government councils should encourage their indigene by providing them with adequate amenities. This will no doubt spur them to paying their taxes and levies without complaint.

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