Taxation And Local Government Development In Nigeria

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Taxation And Local Government Development In Nigeria


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. Therefore, the concept of local government is to bring governance closer to the people at the grassroots, with the aim of caring for thesocio-economic and development needs of local populace. Over the years, it has been observed that massive rural-urban migration and over congestion are heating up lives in the cities. Others have contended that Local Governments are docile in terms of aggressive revenue collection to augment allocations from the federation account which they get on monthly basis. Yet, others hinged Local Governments’ abysmal revenue generation on dishonesty on the part of council revenue collectors, who, in most cases, misappropriate collections made on behalf of the council.

Chapter One


1.1 Background of the Study

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 cannoteasily 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. Even the urbanized cities are broken into Local Government areas such that the activities of State Governments are interwoven with those of the Local Governments.

One of the recurrent problems of the three-tier system in Nigeria is dwindling revenue generation as characterized by annual budget deficits and insufficient funds for meaningful growth and viable projects development. Local governments are the nearest government to the people at the grassroots in Nigeria, they are strategically located to play a pivotal role in national development. Since they are responsible for the governance of about 70 percent of the population of Nigeria, they are in vantage position to articulate the needs of the majority of Nigerians and formulate strategies for their realization. Local administration in Nigeria can be traced to the colonial period. Available record shows that the first local administration ordinance was the Native Administration Ordinance No. 4 of 1916 which was designed to evolve from Nigeria’s old institutions the best suited form of rule based on the people’s habits of thought, prestige and custom (Bello-Imam 1990). These local administrations were used in the north eastern and western parts of the country while the indirect rule was introduced in the rest of the north. For example, in 1926, a centralized budget system was introduced. Following the creation of Northern, Western and Eastern regions in 1946, a decentralized public revenue structure began to emerge. The first revenue commission was set up in 1946. During the colonial period, four revenue commissioners were created. The principles, criteria and allocation formulas recommended by the commissions are well documented (see, Ekpo 1994). Macpherson constitution of 1948 initiated some remarkable changes, the regions introduced some reforms in their local administrations in the 1950s which aimed at enhancing performance. Though, the reforms gave local administrations to collect rates and levy pools and income taxes to finance their activities, the regions had overall control of the taxes. Local administration lacked self-determination, hence their resource were inadequate. Though, the local authorities were partially successfully in the North but unsuccessfully in the Eastern and Western regions. Adedeji (1970) blames the ineffectiveness of local administration on the following reasons. (a) Lack of mission or lack of comprehensive functional role (b) Lack of proper structure (i.e. the role of local governments in the development process was not known). (c) Low quality of staff; and (d) Low funding. According to him, these problems led the local governments into a vicious circle of poverty because inadequate functions and powers lead to inadequate funding which result in the employment of low skilled and poorly paid staff. Local government administration n the country experienced fundamental changes in 1976. The 1976 local government reform created for the first time, a single-tier structure of local government in place of the different structure in the various states. Our interest in the 1976 reform hinges on the restructuring of the financial system. The reforms instituted statutory allocation of revenue form the federation account with the intention of giving local government fixed proportions of both the federation account and each states’ revenue. This allocation to local government became mandatory and was entrenched in the recommendations of the Aboyade Revenue Commissions of 1977. The 1979 constitution empowered the national Assembly to determine what proportion of the federation account and revenue form a state to allocate the local government. In 1931, the National Assembly fixed these proportions at 10percent of the federation account and 10 percent of the total revenue of a state. In 1985, the state’s proportion was reduced to 10 percent of the internally-generated revenue, local governments’ allocation from the federation account was later adjusted to 20 percent. It was further increased to 25 per cent with the arguments that local governments are expected to take on larger developmental responsibilities. The revenue allocation has continued to vary in proportion over time.

1.2 Statement of the Problem

The development ratio between the urban cities and the rural dwellings in this country is abnormally lopsided and highly unacceptable for even and sustainable development of this nation in particular and Africa in general. This lopsided development policy has created many avoidable problems some of which are massive ruralurban migration thereby over congestion and heating up the lives in the cities, infrastructural decay at the rural areas due to total neglect and abandonment, mass poverty in the country due to lack of proper harmonization of the nation‘s resources (Ibhawaeghele, 2012) The important question at this juncture thus relates to how much impact local governments have made on the lives of the people in their areas vis-à-vis the high expectations from the latter. No doubt, with the substantial increase in revenue accruing to local governments for quite some time now, some of them have been able to embark on significant projects in various spheres with positive impact on social infrastructure, agriculture, health, industries, and water supply. However, available facts still show that our local governments in Nigeria cannot be counted among the high-performing ones in the world, indeed, not even among the average performing local governments in the third world. Rather, our local governments have been sharply criticized for poor performance in terms of scope, depth and quality of services, particularly in such areas as provision of infrastructure, medical and health services, water supply, waste disposal and many other services listed in the 1999 Nigerian Constitution. In fact, some of the Constitutional functions are not performed at all. And as a former Edo State top government official (Egonmwan, 1984) observed: With the massive increase in the revenue from the Federation Account following the 1976 reform, many Local governments engaged in reckless spending on grandiose projects which have little relevance to the needs of the local communities. With the oscillation and dwindling of revenue from oil, many of these projects became abandoned leading to colossal waste of resources. There can be hardly any local government area in Nigeria today where corpses of abandoned projects are not found. This necessitate the need for the study taxation and local government in Nigeria.

1.3 Objective of the Study

The main objective of this study is to ascertain the efficacy of taxation and local government administration in Nigeria; but to aid the completion of the study, the researcher intend to achieve the following specific objective;

  1. To ascertain the problem of revenue generation in Nigeria local government administration
  2. To examine the role of local government administration in tax collection process and implementation of tax policies
  3. To examine the relationship between local government administration and revenue generation
  4. To examine the impact of local government administration and rural development in Nigeria

1.4 Research Hypotheses

The following research hypotheses were formulated by the researcher to aid the completion of the study;

  1. H0: there is no significant relationship between local government administration and revenue generation
    H1: there is a significant relationship between local government administration and revenue generation
  2. H0: local government administration does not have any impact on rural development in Nigeria
    H2: local government administration does have an impact on rural development in Nigeria

1.5 Significance of the Study

Practically the study will assist the State Board of Internal Revenue in positively administering their responsibilities in raising revenue through personal income taxation and conducting other tax duties. It will also help policy makers in adopting appropriate policy on tax personal income tax and sanctions against violation or evasion of taxes by individuals, groups or companies. It will also help the officers of the Board of Internal Revenue to adopt new strategies in ensuring compliance of individuals, groups and companies in fulfilling their responsibilities as citizens of the country. Theoretically, it will help in the education of the management, administrators and tax officers on the need for continuous tax assessment towards increasing the revenue base of the government. It will also assist in the education of ii the general public and tax payers on the need to carry out their responsibility as citizens of the country. The study will be of great importance in providing information to readers, especially those involved in financial administration to gain knowledge on the administration of personal income taxation. It will increase the data base for scholars and practitioners interested in the field of revenue generation through personal income taxation. Finally, it will serve as a reference point to scholars, and students who want to conduct research in future in the field.

1.6 Scope and Limitation of the Study

The scope of the study covers taxation and local government in Nigeria; but in the cause of the study, there were some factors that limited the scope of the study;

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.

c) Finance:

Limited Access to the required finance makes it difficult to get all the necessary and required information concerning the activities.

1.7 Operational Definition of Terms


Taxation is a term for when a taxing authority, usually a government, levies or imposes a tax. The term “taxation” applies to all types of involuntary levies, from income to capital gains to estate taxes. Though taxation can be a noun or verb, it is usually referred to as an act; the resulting revenue is usually called “taxes

Rural Development

Rural development is the process of improving the quality of life and economic well-being of people living in rural areas, often relatively isolated and sparsely populated areas. Rural development has traditionally centered on the exploitation of land-intensive natural resources such as agriculture and forestry.

Community Development

Community development is a process where community members come together to take collective action and generate solutions to common problems. Community wellbeing (economic, social, environmental and cultural) often evolves from this type of collective action being taken at a grassroots level.

Revenue Generation

Revenue generation is complete amount of money that is generated during a specific time period. The money is used to calculate business profits. Media houses make their money through Direct Payment and Indirect Payment

1.8 Organization of the Study

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

  • Chapter one is concern 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 ascertain that the objective of this study was to ascertain the efficacy of taxation and local government 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 challenge of tax administration and local government in Nigeria.

5.2 Summary

Nigeria’s tax system is characterized by unnecessarily complex, distortionary and largely inequitable taxation laws ii that have limited application in the informal sector that dominates the economy. Among the other problems relating to taxation can be added the low yield of revenue disregard for the true principle of federation, endemic institutional and management concerns at sub-national levels, weak tax assessment, corrupt processes, and the prevalence of multiplicity of taxes. The major challenges facing tax authorities include the need not only to build, but also to utilize institutional and human capacity, funding and logistics as well as finding solutions for tax evasion, fraud and mismanagement of collected revenue, improving voluntary compliance and quick adjudication on legal matters for the tax system to be efficient and effective it must produce officials that are well-paid,-well-motivated, properly organized, adequately equipped, well-disciplined and professionally-inclined. The system needs to adhere to simple, clear and unambiguous tax laws, assessment and collection procedures must be straightforward, transparent, client friendly

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 Recommendations

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 any one 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.

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