Revenue Generation In Local Government Areas: Problems And Prospect

Project and Seminar material for Public Administration

Revenue Generation In Local Government Areas: Problems And Prospect


Abstract


The adverse situation in the various local government areas of Nigeria has led the researcher to go into this very topic. Hence, the purpose of this work is to enlighten people, mostly students in the school of financial studies on how revenue is generated in local governments, problems confronting them as regards revenue generation as well as prospects to the problems.

However, local governments are expected to use the fund generated in embarking on income earning projects, projects that come under fee or bill charging utilities like portable water, electricity, construction of market squares etc.

However, before fund can be generated, one must make ways of getting the funds like grants given to local governments for some purposes by the federal government. The central government also determines the sources, extent, purpose and maximum duration for which borrowing is to embark upon by the local government and not just going ahead to borrow.


Chapter One


Introduction

1.1 Background of the Study

The essence of this division of government into federal, state and local levels is to enable the government exercise her administration easily and effectively. However the 1979 constitution spells out the functions of each level of government. Generally it can be said that the governments are responsible for the provision of the collective (social) goods and services on a non- commercial basis as well as the provision of other social and economic services. In order to meet up with the foretasted goals and services, the government needs to collect revenues.

Local government, which this work emphasizes on, can be described as the government at the local level, exercised through representative council, established by law to exercise specific power within definite areas. The government of such body is selected or otherwise locally selected.

The administering of government at local level in Nigeria traced as far back as colonial period, when native authorities were established in their rudimentary forms, that is in their own ideas. They represented a system of indirect rule, which sought to establish a form administration through traditional authorities

Between 1950 and 1955, the first elected local government council based on the model was shadbushes in logos and in the former Eastern and western Region. Though, the traditional members constituted a maximum of 25 percent in most of the councils, the emergence of members elected on a political basis instigated the traditional rulers to gradually withdrawn from active participation in local administration in Nigeria.

Presently, local government administration is still in existence assigned with numerous. Responsibilities like, bawling of market square, provision of pipe-born water, motor parks, rehabilitation of local and rural roads, sanitary and health inspection, maternity home and dispensaries e t c.

Finally, local governments have two (2) main sources of revenue or fund. They are

  1. External sources of fund.
  2. Internal sources of fund.

The External sources of fund include;

  1. Statutory allocations from the federal and state government (i.e., 20% considered federal revenue and 10% of internally generated state revenue).
  2. Special grants which aim at assisting local government finance their aforementioned projects. In addition, local government source fund internally through receipts on rent and rates on their properties, tenement tax, earning from commercial undertaking, interest payment and dividend, licenses, fees and fines e t c.

Local government plays a crucial role in the delivery of services to the citizenry. The success of any local government is its ability to utilize its human and material resources to achieve the desired objectives i.e. rendering needed services to the community. Local government is a government in which popular participation both in the choice of decision makers and in its recognition of a third tier of government. Prior to 1976, however, Nigerian local government has passed through various reforms. These reforms and reorganizations have affected the system financially, administratively, politically and functionally. The historical evolution of the local government system in Nigeria dates back to the colonial era when it was called the colonial native authority system which existed between 1920’s and 1930’s (Orewa and Adewumi 1983). In their form, they represented a system of indirect rule whose aim was to establish a system of local authorities through traditional authorities. The main task of local government in this era was maintenance of law and order at grass root level. Also the issue of revenue generation in the local government system has been in existence since in this traditional system of local government. In pre-colonial Nigeria the Chiefs, Obas and Emirs were responsible for revenue generation. This they usually did through levies and taxes, which they used in managing their communities. During the colonial era the British especially in the North introduced a system of indirect rule in which direct taxes were introduced in various local communities for running their affairs. By 1933, the powers of the local authorities were extended to cover expanded functions due to reliable performances. After the independence in 1960, local governments acquired more responsibilities that were assigned to them by the constitution. For instance, section 6 of the 1979 Constitutions of Nigeria provides that: The functions to be conferred by law upon local government council shall include those spelt out in fourth schedule to this constitution Also the constitution made provision for substantial funds to local councils. This is because there is no doubt that sound financial base is a prerequisite for effective performance of the roles assigned to local government. For instance, section 7(6) of the 1999 Constitution makes provision for the funding of local government as follows;

The National Assembly shall make provision for statutory allocation of public revenue to local government councils in the federation; and b) The House of Assembly of a state shall make provisions for statutory allocation of public revenue to local government councils within the state. More specifically, provision was made under the Revenue Allocation Act of 1981 for statutory allocation of 10 percent of national revenue to local government, became operational in 1989 and 20 percent in 1992. (Idike 1995:1). In addition, state governments were required to contribute 10 percent if their internally generated revenue to local government (Dasuki Report, 1985). Under this fiscal arrangement, local government depended mainly on State and Federal Governments for revenue and grants.

This source of revenue is in some cases unreliable and unstable. This is due to the fact that most state government has failed to release 10 percent of their internally generated revenue to their local governments. In addition, some State Governments interfere with the statutory allocations to local governments. It is in recognition of this that the originators of 1976 Local Government Reform made genuine efforts to assist the local government system financially. For instance in 1976, the Federal Military Government after the reform as it was contained and noted in the Guidelines for Local Government Reform 196:11) stated that: Lack of adequate funds and appropriate institution has continued to make local government ineffective and ineffectual. In embarking on the reforms, the Federal Military Government was essentially motivated by the necessity to stabilize and rationalize government at the local level. This must entail the decentralization of some significant functions of state government to local levels in order to harness local resources for rapid development. This gave rise to provision of different sources of internal revenue generation for Nigerian local government in our subsequent constitutions. Also various measures were taken to take care of the financial problems of the local system. For instance there are many Edicts in various states like Buruku State Edict (1976) in favour of other sources of revenue for the local government system the aim for provision of internal sources of revenue generation to Buruku local government is to supplement the statutory allocations from both federal and state government. It is assumed that if local government can satisfactorily generate a large proportion of its revenue internally, it will cease relying heavily on the statutory allocations.

Despite these constitutional provisions for sources of internal revenue, Buruku local government and some other local government s in Nigeria are still unable to tap all these internal sources. Hence, the problem of poor internal generated revenue in most local government in Nigeria. It is on this background that this study tends to examine factors that constitute impediments to maximum generation of internal revenue in Buruku local government of Buruku state.


1.2 Statement of the Problem

The problems that confront most local governments on revenue generation cannot be over-emphasized. Hence local government having numerous means of sourcing fund, are also, faced with a lot of problems and difficulties in generating its revenue. These problems affect mostly its internal sources of revenue.

Tax avoidance and delinquencies are among the problems confronting most local governments on revenue generation, as most people of the society device some means source maximum reduction in the amount to be paid as tax obligation on the date it is due, thereby, escaping tax liabilities.

Inability of most people of the society to pay up amount due for rent and rates on local governments properties. This hinders local governments as regards revenue generation, as most people lack fiancé and others not willing to pay – up.

Inadequate operational vehicles and other facilities confront local governments as a problem in generating revenue. Revenue generation needs mobilization and most local government do not have enough, which would have enable them to move easily from one part of the area to another for the collection of various fees.

Another problem hindering local government revenue generation lies among the staff. Many staff lack job related in service training, and some have poor educational background, some are not dedicated, diligent and honest. Often they do conclude with tax or ratepayers to defraud the government.

All these problems will not only affect the local governments but, every member of the society and the nation in general. This is because, these problems will not enable most local governments to carry out or problem their statutory assigned functions effectively thereby, leading to and definitely, affects the economic growth and development of the nation (Nigeria).


1.3 Objective of the Study

The broad objective of this study is to examine revenue generation in Buruku local government. The specific objectives of the study are as follows:

  1. To find out the various ways of generating revenue in Buruku local government.
  2. To find out if lack of financial autonomy constitutes a problem to internally generated revenue in Buruku local government.
  3. To proffer solution to the problem of poor internal revenue generation in Buruku Local Government Area.

1.4 Research Hypotheses

Hypotheses One
  • Ho: There is no relationship between revenue generation in local government and development.
  • Hi: There is a relationship between revenue generation in local government and development.
Hypotheses Two
  • Ho: Lack of financial autonomy impedes revenue generation by the local government
  • Hi: Lack of financial autonomy enhances revenue generation by the local government

1.5 Significance of the Study

The inhabitants of the various local government areas of the nation (Nigeria) will have the course to enjoy the affirmative results to certain extent if all or parts of these problems to revenue generation in local governments are properly tackled. Hence, such myriad of problems of revenue generation, which also, give rise to untold hardship will generally be under control or a thing of the past.

This will become a tool for most local government areas to a speedy set-up of some strategies which will enable them to generate their revenue easily, and as well as executing their projects effectively. This study will be of paramount significance to the society, mostly to those students in school of financial studies (Banking and finance) who are making or intending to carry out research in the problems that confront most local governments in Nigeria on revenue generation.This will also give potential market men and women as well as other residence of various local government councils as regards payment of tax, rates, charges, etc.

Finally, it will enable the researcher to have an in-depth knowledge of the study. Therefore, the significance of this study is by no virtue, exhaustive.


1.6 Scope and Limitation of the Study

This study is primary concerned with revenue generation in local government areas. This study/project work covers Buruku local government area of Buruku State.The researcher encountered some constraints, which limited the scope of the study. These constraints include but are not limited to the following

a) Availability of Research Material:

The research material available to the researcher is insufficient, thereby limiting the study

b) Time:

The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.


1.7 Definition of Terms

Taxation:

This is one of the ways local government generate revenue. It is a compulsory levy imposed by the local government on most of the entire members of the society who are capable of paying tax or who are expected to pay tax.

Personal Income:

This is a form of direct tax, which is levied on the wages, salaries and other earnings of individuals. In assessing this kind of tax, certain allowances (wife, children, dependent relative allowance, etc) are deducted; the balance is then taxed to determine the amount to be paid as tax.

Loans:

Loan can be described as a financial aid with interest payable. Sometimes local governments borrow money in form of loan from other bodies like: Banks, State Government, Federal (if possible) etc to enable them execute their projects when they are in short of fund. However, this loan is payable at a given interest rate over a specified period of time.

Rent and Royalty:

These are payments made to local government properties or revenue, such as land, building, etc.

Grants:

Grant are said to be financial aids without interest. This simply means that grants are form of gift granted to local governments by a body (federal, state or any other body) without paying back.

Charges, Fines & Fees:

These are among the means of generating revenue by the local government. They are payments made to local governments by those who indulge in one commercial activity or the other. Such fees are: motor license fees, Road / bridge tolls, market fees etc.


1.8 Organization of the Study

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

  1. 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.
  2. Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature.
  3. Chapter three deals on the research design and methodology adopted in the study.
  4. Chapter four concentrate on the data collection and analysis and presentation of finding.
  5. Chapter five gives summary, conclusion, and recommendations made of the study

Chapter Five


Summary, Conclusion and Recommendation

5.1 Introduction

It is important to ascertain that the objective of this study was to ascertain a critical analysis of revenue generation in local government areas.

In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations are made, which in the opinion of the researcher will be of benefit in addressing the challenges of revenue generation in local government areas.


5.2 Summary

This study aimed at having a critical analysis of revenue generation in local government areas. Three objectives were raised. These objectives include: To find out the various ways of generating revenue in Buruku local government, to find out if lack of financial autonomy constitutes a problem to internally generated revenue in Buruku local government, to proffer solution to the problem of poor internal revenue generation in Buruku Local Government Area.


5.3 Conclusion

Based on the above findings pertaining to the objectives of the study the following conclusions are drawn.
The major problem of internal revenue generation in Buruku local government is the over concentration on sharing the national cake withoutmuch attention on baking it. Buruku local government relies on external transfer for about 90% of its revenue. There is shift in the emphasis from internally generated revenue to external revenue as a means of financing local government over the years (Omapariola and Aewale, 1998:139). This phenomenon can be explained in part by the fact that in early sixties, agriculture used to be mainstay of the Nigerian economy. The oil boom created the condition of over dependency on oil revenue in Nigeria and the country basically became a mono-cultural economy that relies mainly on oil for its survival. This over reliance on oil revenue has made virtually all the local governments in Nigeria to focus unceasingly on it without blinking. Hence agriculture and sources of income was neglected.


5.4 Recommendation

To improve the financial capacity of Buruku local government, it is necessary to enhance the internally generated revenue. This will reduce the over dependence on external sources of fund. To do this, the following steps should be taken:

  1. Firstly, there is need to employ and involve the service of higherranking officers in financial management of Buruku local government. High-ranking officers are likely to have greater ability for revenue collection than low ranking inexperienced officers who lack reward feelings. Again experienced officers can assist in taking vital financial decision that can enhance internal revenue generation in the local government. To make this more result oriented, it is suggested that these high-ranking officers could make use of available records at ward and community levels. Through this means, it will be able to compare the revenue yield at any moment with the total expected from each unit, ward or community. In essence one of the functions of these superior officers would entail mobilizing the communities to live up to their civic responsibilities by discharging their financial obligations to the local government promptly.
  2. Again, there is need for proper re-orientation and training of low-rank officers. The orientation of revenue officers of the local government will build in them a high sense of challenge, importance and achievement. It will increase their knowledge of how to keep proper account of the local government. The trained revenue officers at least will know how to use his/her initiative to improve internally generated revenue instead of waiting directives from the superiors. The high rank officers should best assist in this area. Also staff should be properly motivated through adequate incentive package like improved remuneration and revenue drive should also be provided.
  3. It is also suggested that poor attitude to work of revenue collectors should be checked. Cases of proven dishonesty should be seriously handled and adequate punishment meted out to deserving officers. Sanitations should be enforced. In the Model Financial Memoranda for Local Government (1991) (39,3), offences and sanitations are stipulated as regards irregularities in losses to local governments due to either fraudulent activities of the functionaries or due to their negligence or competence, irregularities not directly or immediately resulting in losses to the local government but which infringe upon budgetary control and proper financialmanagement and irregularities arising from poor or inefficient management of accounts and which may result in losses. Again, as Adewale and Omapariola, (1994:189) suggested, local government officials must comply with all applicable rules and regulations, be consistent with good accounting principles, provide accurate financial reports and spend government money on real and legitimate objectives.
  4. Again, most tax payers in Nigeria can hardly pay in absence of official action. Therefore, revenue collectors have to be at heels of the tax payers to ensure compliance. Effort should be made to bring more people into tax net. Traditional rulers and Chiefs would then be engaged in helping to get the defaulters to pay. Enjoyment of certain services should be tied to payment of taxes. Effective computerization will also help in respect of accuracy and voluntary compliance by taxpayers.

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