THE IMPACT OF REVENUE GENERATION IN LOCAL GOVERNMENT IN NIGERIA (A CASE STUDY OF SELECTED LOCAL GOVERNMENTS IN KANO STATE)

CHAPTER ONE

INTRODUCTION

1. BACKGROUND OF THE STUDY

One area which has remained neglected over time by the local governments in Nigeria is revenue generation. Revenue generation in Nigeria’s local government is principally derived from tax. Therefore, taxation is an internal source of government revenue within the domestic economy. Its collection and service to the government depends largely on the government itself. Taxation has been described in many ways and for the purpose of this study it will be seen as compulsory levy imposed on a subject or upon his property by the government having authority over his property through its agencies with the aim of providing, maintaining and improving social facilities in the communities at large and for which the tax payer has no quid pro que. Nigeria has three- tiers of government systems, these are; (i) The federal government (ii) The state government and (iii) The local government. 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 (i) External sources of fund. (ii)  Internal sources of fund. The External sources of fund include; (a) Statutory allocations from the federal and state government (i.e., 20% considered federal revenue and 10% of internally generated state revenue). (b) 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 etc. Revenue generation is the nucleus and the path to modern development. This is because local government as the third tier of government and the closest to the people especially in the rural areas needed revenue to provide basic social amenities to the people. But it is unfortunate to note that the local government management have not lived up to expectation especially to provide basic social amenities to the rural people. Development is a sine qua non for modern civilization. In order to carryout development at all nooks and crannies of the society, it is the responsibility of the Local Government to provide direct development to people to a certain level. Development is associated with funds and much revenue is needed to plan, execute and maintain infrastructures at the state level. The needed revenue generated for such developmental projects, like construction of accessible roads, building of public schools, health care centres, construction of bridges are generated from taxes, royalties, haulages ,fines, and grants from the states, national and international governments. These funds could either be obtained internally or externally. Thus, the Local Government cannot embark, execute and possibly carryout the maintenance of these projects without adequate revenue generation.

1. STATEMENT OF THE PROBLEM

There are a lot of problems that hinders revenue generation by Local governments in Nigeria. The relevance of the local government councils as the government at the grassroots is measured by the quality and quantity of services rendered to the rural dwellers. For the local government council to render meaningful services, in form of provision of basic amenities, construction and maintenance of roads, creation of employment opportunities for the citizens and payment of staff salaries as at when due, money is undoubtedly required without the availability of revenue, a local government council will not only be incapable of serving the people but will undoubtedly crumble. It therefore, follows that for the local government to discharge its statutory functions effectively, it should not only be adequately funded but such fund should be efficiently applied. 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 collude 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. AIMS AND OBJECTIVES OF THE STUDY

The major aim of the study is to examine the impact of revenue generation in Local government in Nigeria. Other specific objectives of the study include;

1. To examine the Local Government Administration in Nigeria.
2. To determine the sources of revenue generation in Local Government in Nigeria.
3. To examine the impact of revenue generation on Local Government performance.
4. To examine the functions of Local Government in Nigeria.
5. To examine the relationship between generated revenue and local government capital projects.
6. To recommend ways of curtailing revenue generation problem.

1.4. RESEARCH QUESTIONS

1. How is the Local Government Administration in Nigeria?
2. What are the sources of revenue generation in Local Government in Nigeria?
3. What are the impacts of revenue generation on Local Government performance?
4. What are the functions of Local Government in Nigeria?
5. What is the relationship between generated revenue and local government capital projects?
6. What are the recommended ways of curtailing revenue generation problem?
   1. RESEARCH HYPOTHESIS

H₀: Revenue generation has no significant impact on local government performance.

H₁: Revenue generation has a significant impact on local government performance.

1. SIGNIFICANCE OF THE STUDY

From the outlook, there is need for the local government to improve their performance. However, the research is significantly considering the closeness of local government to the grassroots’ people and the need to utilize substantial revenue for its various sources in addition to federal and state statutory allocation for developmental purpose. The study will help to identifying some means of generating revenue that has been neglected over years. It will also be beneficial to the grassroots because improved revenue generation means improved standard of living in form of provision of social amenities such as road, hospital, park, drinkable water, rural electrification etc. The study will be educative as it will be a reference point for researchers.

1. SCOPE AND LIMITATION OF THE STUDY

The study is restricted to the impact of revenue generation in Local governments in Nigeria, a case study of selected Local Governments Areas in Kano state.

1. LIMITATION OF THE STUDY

Financial constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview)

Time constraint: The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

1. DEFINITION OF TERMS

Impact: Impact in this study refers to the effect of revenue generated on service delivery by local government. It also determined the extent to which local government was able to deliver local services with resources at its disposal.

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, 2013).

Revenue: According to 2009 constitution, revenue is defined as any income or returns accruing to or derived by the government from any source and include any receipt however described arising from the operation of any law, and receipt however, described from or in respect of any property held by government, and any returns by way of interest or loans and dividends in respect of shares or interest held by government in any company or statutory body. However, revenue can also be regarded or referred to as tolls, taxes, rates, fees, royalties, rents and other receipts of government from whatever sources such as proceeds from loans given out (Section 162(10) of 2009 Constitution). Revenue accruing to any tier of government may be classified as recurrent or capital. While the former is generated on day-to-day basis throughout the year, the latter arises once in a while and in a larger proportion. They are also described as internal and external sources of revenue respectively. Nevertheless, the word revenue will be used in the context of this research to mean any amount of money coming into the local government from whatever sources and which the local government has power of appropriation.

Generation: This is the process of sourcing revenue for the local government in carryout their aim and objectives.