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TAXATION AND LOCAL GOVERNMENT DEVELOPMENT IN NIGERIA
(A CASE STUDY OF OKENE LOCAL GOVERNMENT AREA OF KOGI STATE)
ABSTRACT
Local government is faced with varieties of difficulties to source adequate revenue from federal government, state government and the internally generated revenue, such problems are cogwheel to the smooth running of local government administration. They are; the dishonesty on the part of officers collecting the revenues, such as cases of printing receipts by the officers had been the major problem in releasing the expected revenues. The machinery put in place for collection of revenue is inadequate hence, most of the government money are not collected and this is in case of the internally generated funds that is while, there need to review the revenue generation in Local government in Nigeria. The objectives of the study are: to review the revenue collection in local government, to analyze the machinery of internally generated revenue, to determine the impact of revenue generated in Nigeria local government, to review the various sources of internally generated revenue. Data were collected from ten local governments in Okene for this study and the analysis is through descriptive and inferential statistical methods. The descriptive analysis involves the use of percentage, tabulation and counts while inferential statistical method employs chi-square. keeping of appropriate accounting records and books (c) Supply of social and economic services: Establishment of Projects: Staff motivation: workers should be encouraged so that they can put in their maximum services and when this is done, there will be increase or solid improvement in revenue generation.
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CHAPTER ONE
1.0Â Â Â Â Introduction
Revenue generation in Nigeria local governments is principally derived from TAX. Meanwhile tax is a compulsory levy imposed by government on individuals and companies for the various legitimate function of the state (Olaoye, 2008). Tax is a necessary ingredient for civilization. The history of man has shown that man has to pay tax in one form or the other that is either in cash or in kind, initially to his chieftain and later on a form of organized government (Ojo, 2003). No system or rules can be effective whether foreign or nature unless it enjoys some measures of financial independence.
Local governments in Nigeria has developed over a number of years. Historically, the development of direct taxation in local government in Nigeria can be traced to the period before the British pre-colonial period. Under this period, community taxes were levied on communities (Rabiu, 2004) recently the revenue that accrues to local government is derived from two broad sources, viz: the external sources and the internal sources.
1.1Â Background of the Study
The overriding objectives and the impact of assessment and procedures on tax collection is to ensure that all tax payers within a defined tax jurisdiction are brought into the tax net and assessed correctly in order to plug all possible leakages for effective revenue generation. According to Ariwodola (2001) who defined tax as a compulsory levy imposed by government authority through its agents on its subjects or his properties to achieved some goals. Also, Arnold and McIntyre (2002) defined tax as a compulsory levy on income, consumptions and production of goods and services as provided by the relevant legislation. Tax is a charge imposed by government authority upon property, individuals, or transactions to raise money for public purposes. This definition may however be imperfect, because the study of the teaching of Christianity, Islamic and other prominent religions in the world shows that tax is a religious duty based on social and civil responsibilities (Agbetunde 2004). They all support and encouraged tax imposition either to redistribute wealth or to finance government project.
Nigeria is richly blessed with oil and gas among other mineral resources but the over dependence on oil revenue for the economic development of the country has left much to be deserved. According to Ariyo (1997) Nigerian over dependence on oil revenue to the total neglect of other revenue sources was encourage by the oil boom of the seventies. This is unsustainable due to the fluctuation in the oil market which have in most cases plunged the nation into deficit budgets. It was the view of Popoola (2009) that Nigeria tax administration and practice be structured towards economic goals achievement since government budgets over the year centres on the oil sector, while decrying the low productivity of the Nigeria tax system. Therefore, in order to mitigate the over dependence on the oil source, the tax system was introduced as the additional revenue generation. Tax is a charge imposed by government authority upon property, individuals or transactions to raise money for public purposes. The Nigeria tax administration is in line with the British model of tax administration since 1960 and has been.
1.2 Â Â Â Objectives of the Study
To review the revenue collection in local government, to analyze the machinery of internally generated revenue, to determine the impact of revenue generated in Nigeria local government and to review the various sources of internally generated revenue.
1.3Â Â Â Â Significance of Study
Comparison of different State Government revenue generating ability will and the researcher to know how well the government is able to raise revenue on its own apart from its statutory allocation and how it can develop its revenue mobilization in terms of increasing its revenue from taxation.
Comparison of different State Government revenue generating ability will and the researcher to know how well the government is able to raise revenue on its own apart from its statutory allocation and how it can develop its revenue mobilization in terms of increasing its revenue from taxation.
1.4Â Â Â Scope and Limitations of Study
         This study aims at covering the local government’s taxes in terms of       mobilization and collection, so also is the spectrum of the various types of                  taxes collected:
Information necessary to account for increased revenue has been difficult to     obtain, due to a number of tax changes that took place within the period of        study. Thus on examination of the ratio of internally generated revenue to    statutory revenue allocation as used by Nyongs (1998) will be carried out by     the researcher.
         This study aims at covering the local government’s taxes in terms of       mobilization and collection, so also is the spectrum of the various types of                  taxes collected:
Information necessary to account for increased revenue has been difficult to     obtain, due to a number of tax changes that took place within the period of        study. Thus on examination of the ratio of internally generated revenue to    statutory revenue allocation as used by Nyongs (1998) will be carried out by     the researcher.
1.5Â Â Â Terminologies in Study (Taxation)
         Taxing Power: The power within a tier of government in impose a tax by its   own law and prescribe conditions for the collection and due administration of the tax either by its own agency or that of another tier of government.
         Tax:  A burden which every citizen must been to sustain his or her         government.
         Tax Rate: This is the amount of tax which is levied per unit of base.
         Tax Policy: Policies that aims at amending the tax rate so as to suit        economic fiscal policy measures.
         Tax Incidence: This is where the burden of tax falls or who bears the     burden of tax.
         Tax Base: It is the object that and it could be the value of the income.
         Taxable Capacity: It is the connected with the amount of tax which could       be jointly or fairly imposed on the individual.
         Tax Compliance: The obedience of a tax payer totally under the law. This          obedience can be induced, voluntary or compelled.
1.6 Â Â Â Hypotheses that are Tested
We have the null hypotheses as follows:
H1=There is no internal control measures put in place to ensure effective utilization of revenue generated
H2=There are no lay down procedures for revenue collection
H3=There is no town that is too small to approach for revenue generation
CHAPTER TWO
2.0Â Â Â Â Literature Review
2.1Â Â Â Â Development of Local Government in Nigeria
The evolution of local government in Nigeria has under gone a lot of changes. These are all geared towards making the local government a system that could serve the purposes for which they are created, before the emergence of the British Colonial/ Administration; various communities in Nigeria were governed through the instrumentality of their traditional political Institutions. These institutions were anchored on the people’s habits of thought, prestige and custom which are adapted to meet the new conditions for general development of their areas.
Local authorities were empowered to charge and collect developmental rates based on a certain percentage of the income of the rate payers. The council enjoyed the social autonomy of providing certain social services to the community, for instance the local government was vested with the responsibility of healthcare services delivery with the transfer of primary healthcare delivery system.
In the 1950s, election was introduced according to the British model in the western and eastern parts of the country with some measure of autonomy in financial, general administration and in personnel which gave rise to tide of progress, growth and development experienced in the local government.
The evolution of local government in Nigeria has under gone a lot of changes. These are all geared towards making the local government a system that could serve the purposes for which they are created, before the emergence of the British Colonial/ Administration; various communities in Nigeria were governed through the instrumentality of their traditional political Institutions. These institutions were anchored on the people’s habits of thought, prestige and custom which are adapted to meet the new conditions for general development of their areas.
Local authorities were empowered to charge and collect developmental rates based on a certain percentage of the income of the rate payers. The council enjoyed the social autonomy of providing certain social services to the community, for instance the local government was vested with the responsibility of healthcare services delivery with the transfer of primary healthcare delivery system.
In the 1950s, election was introduced according to the British model in the western and eastern parts of the country with some measure of autonomy in financial, general administration and in personnel which gave rise to tide of progress, growth and development experienced in the local government.
Prior to this period, the British introduced native courts chaired by Chiefs, native treasuries where taxes collected from people were paid in for use by the local government. Native authorities were created with traditional rulers at the head of each authority. The traditional rulers continued to dominate local government’s administration until the military took over power. In 1966, from then the powers of the traditional rulers, especially in the northern region, reduced gradually. The newly created states in the Northern region increased popular participation in local government administration. Larger local authorities were broken to smaller ones and native authorities were changed to local governments.
The local government reform of 1976 provided the guidelines for local governments in Nigeria. The reform created large-sized local government areas throughout the federation based on a certain minimum population requirements, these results in uniform local government areas. The federal government for the first time was involved in the funding of local governments. The local government gets statutory percentages share of Federation accounts and state revenue. The local government was made a third tier of government, which means the local government has its own powers. There were about 301 local government councils as at 1976.
In 1986, the Babangida Administration made local government an effective third tier of federal system, introduced reforms aimed at enhancing their autonomy and strengthening their administrative framework. All elected councilors now constitute legislative arm of the local government which the executive arm consists of the chairman and vice-chairman and supervisory councils.
The local government witnessed several reforms between 1991 to 1992. The reforms snows a fundamental implications for local government administration, especially in regard to the reforms to the local government service. 589 local government areas were in existence as of 1991 local government reforms and there was establishment of the executive chairmanship of local government with functions firmly entrenched in schedule four of the constitution.
The federal government established the local government service commission aimed at preserving the independence of the local government staff. The federal government increased the local government share of the federation accounts to twenty percent. This increase in revenue base gave local government’s high degree of confidence and power to equip them for the challenging role, facing them.
According to 1999 constitution of Nigeria, not only recognizes, but also guarantees the existence of a more powerful and independent local government areas section 162 of the 1999 constitution guarantees the right of the local government to receive statutory allocation of the revenue from both the federation account and state resource. The fourth, schedule of the same constitution spells out the functions of the local government.
The federal government increased the local government share of the federation accounts to twenty-five percent. In the present local government administration, there are about 774 local government areas in Nigeria with the rights and power of providing certain social services to the communities, such social services like provision of healthcare centers, electrification, and provision of pipe bore water and accessible roads etc.
2.2Â Â Â Â Â Sources of Taxation in Local Government
In an attempt to marshal out the functions of the local government, the fourth schedule of the constitution of the federal Republic of Nigeria 1999 implicitly specified some of these sources of taxation to the local government.
However, Ogunna (1996). Posited that generally the local government has eight main sources of revenue which includes rates, grants, statutory, allocations, fees and charges, fines, earnings and profits, loans and miscellaneous.
1.    Rate
However, Ogunna (1996). Posited that generally the local government has eight main sources of revenue which includes rates, grants, statutory, allocations, fees and charges, fines, earnings and profits, loans and miscellaneous.
1.    Rate
As one of the independent sources of revenue, people residing within a local government area pay some money to it in form of rates. Rate is, thus a local tax of the local government which is of three types namely property rate, special rate and capitation rate otherwise known as poll tax. Property rate is a fixed percentage amount of the current value of a private property levied on the owner of such a properly. Capitation rate which is also a fixed amount of money levied on all rateable adults living in the local government. It is not only fixed but equal for every payer and like the property rate, it is paid annually.
As a flat rate, it is generally low so that the low income people can conveniently pay.
Special rate is a fixed amount meant to be paid by all rateable adults residing in the local government area. Special rate is usually levied for specific and priority projects like Education, water supply and rural electrification which the local government has inadequate fund for its provision.
2.    Statutory Allocation
As the third tier of government, the local government receives statutory allocation from the federation account just like the state and federal government. This share of revenue is as fixed by law, part of it also comes from the state government total internally generated revenue based on percentage formula because it is fixed by law, it is not voluntary but mandatory and does not depend on the whims and caprices through a legitimate process of change of the law that provides it. Statutory allocation is definite and certain.
3.    Fines
These are penalties imposed by the customary courts on individuals for the contravention of the bye-laws of the local government to regulate and control services allocated to them within their areas of jurisdiction. Note that revenue accruing to the local government through this source is relatively very insignificant.
4.    Earning and Profits
These are profits, interests and premiums accruable to the local government from its investment of funds in private or public economic ventures.
In other words, they are money realized by the local government from commercial ventures and industrial establishments such ventures includes mass transit services, soap industry, bakery, Agricultural farms, shares owned in companies. If such business is effectively managed with minimum local government interference and political influences, the higher revenue could be realized.
5.    Fees and Charges
Revenue is generated through payments for the services which the local government provides such fees are in some cases designed to regulate and in other cases to maintain these services.
Fees and charges are imposed and revenue realized from the issuance of various types of licenses like bicycle, wheelbarrow, canoe and cart licence, others are charges on bakeries, sale of liquor in restaurant and public places, erecting of sign-boards registration of births and marriages, motor parks and markets, personal identification, public urinary and toilets etc. The imposition of fees and charges on these services by the local government always requires enabling laws for them to be lawful.
6.    Grants
The federal and state government give grants often called grants-in-aid, to the local government to enable it discharge its functions effectively particularly in the area of the provision and maintenance of certain basic amenities for the people such basic amenities like water and electricity supply, building of educational and health facilities. The maintenance of roads attract grants four main types of grants which includes general or block grant, specific grants, equalization grant and matching grant.Â
Local governments are expected and are indeed meant to embark on certain development projects that are listed as priorities of government. Consequently any local government of that embarks on such priority projects is given a matching grants which is designed to simulate and encourage development.
7.    Loan
7.    Loan
Local governments are empowered to obtain loans from the federal, state and other local government. They are also allowed to raise loans from financial institutions like bank and from individuals. They raise loans for incurring capital development projects that are within their statutory functions.
Educational, Agricultural and Industrial development Projects, drainage schemes, health and market development are good examples of developmental projects for which loan can be raised.
Educational, Agricultural and Industrial development Projects, drainage schemes, health and market development are good examples of developmental projects for which loan can be raised.
The fact is that no local government can make any reasonable giant stride in rapid community development without borrowing. It is however important to note loans are necessity provided that they are prudently applied on capital projects for which they are obtained, on capital projects which are expected to be of immense benefits to the people including the coming generation which incidentally are reasonably expected to pay for such loans in future, our of the rates and other forms of taxes they will pay.
8.    Miscellaneous
Revenue can be generated from the payment of levies like developmental and educational levies. Money can also be realized from rents paid for using any land or building belonging to a local government. Gifts and donations from individuals, philanthropists and corporate bodies also form sources of revenue of the local government. In conclusion, local government are empowered to generate revenue to enable them carryout their statutory and permissive functions.Â
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