REVENUE GENERATION AND DEVELOPMENT OF LOCAL GOVERNMENT AREAS
1.1 BACKGROUND OF THE STUDY
Revenue generation in Nigeria local governments is principally derived from tax. 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 have developed over a number of years. Historically, the development of direct taxation in local government in Nigeria can be traced to 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, via the external sources and the internal source.
An effective Local Government system rests majorly on the availability of human and material resources which the nation could mobilize and harness for local governments development. In 1976, the Federal Military Government then issued guidelines on local governments reforms. The reforms which gave recognition to local governments as the third tier of government whereby government activities at the local level were taken care of. In 1988, another reform of local government was established. This gave a substantial and unprecedented reform of autonomy to the local governments in the country. With this autonomy, greater responsibilities devolved on the local government therefore, became a common knowledge that most of the local government are finding it difficult to cope with the present level of responsibilities.
The principal aims of creating local governments were as follows:
- To serve as the third tier of government through which appropriate services and development are made in response to the wishes of local community through their representatives.
- To serve as an intermediary between government at the center and local communities.
- To mobilize and utilize both human and material resources by engaging the people at the local level in the government activities.
- To facilitate the exercise of democratic self – government closer to the grass root of the society and to exchange initiative and leadership potential.
Mostly, all local governments in Nigeria do no longer perform their responsibilities simply because of poor finances arising from adequate revenue generation drive. The bad financial situation is further aggravated by the prevailing inflationary situation in this country which erodes the value of funds available to render essential social services to the people. Development is highly associated with fund, much revenue is needed to plan, execute and maintain infrastructures and facilities at the local government level. The needed revenue generated for such developmental projects like construction of accessible roads, building of public schools, health care centers, construction of bridges among others are sources generated from taxes, royalties, haulages, fines and grants from states, national and international governments. Thus, the Local government cannot embark, execute and possibly carryout the maintenance of these projects and other responsibilities without adequate revenue generation.
This is the basic reason why development is skeletal at some Local Government councils in Nigeria. The revenue generation is not exceptional to Umuahia North Local Government area in Abia state
1.2 STATEMENT OF THE PROBLEM
The local government is faced with myriads of problems ranging from corruption and embezzlement, poor financing, mismanagement of funds to poor leadership. This has deterred the development of local government in Nigeria.
The major issues are; what has contributed to the non-performance; is it because of total dependence on federal and state statutory allocation? Is it as a result of poor internally generated revenue drive? Is it because of ineffective utilization of available scarce resources or mismanagement by public office holder? Among others, certain percentage of the statutory allocation has always been deducted by the state government thereby causing the local government to underperform which includes; Dilapidated infrastructural facilities, Unavailability of social services to rural populace and Underdevelopment of local communities.
Based on the above stated problems, it has become necessary to conduct an analysis on revenue generation in Umuahia North Local Government area of Abia state.
1.3 OBJECTIVE OF THE STUDY
The broad objective of this research is to evaluate revenue generation and development of Local Government Areas with particular reference in Umuahia North Local Government Area of Abia State.
The specific objectives are;
- To examine the relationship between statutory allocation to the local government and government developed effort.
- To ascertain the extent which value added tax has contributed to government developmental effort.
- To evaluate the extent to which internally generated revenue has contributed to Local government development and it various sources.
1.4 RESEARCH QUESTIONS
The following research questions were formulated for this study.
- What is the relationship between statutory allocation to Local Government and Government developed effort?
- How has value added tax (VAT) contributed to Government developmental effort?
- To what extent has internal generated revenue contributed to Local Government development and its sources?
1.5 RESEARCH HYPOTHESIS
A hypothesis is a theoretical conceptualization or an idea or guest regarding how the researcher thinks the result of his study will look. It consists of a set of assumptions accepted previously as a basis of investigation. It is a proposition that is yet to be tested for its validity.
For the purpose of this research study, three null hypotheses were formulated.
H01:There is no relationship between statutory allocation to Local Government and Government developed effort.
H02: Value added tax has not contributed to Government developmental effort
H03: Internal Generated revenue has not contributed to Local Government development and its sources.
1.6 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 identify 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.
1.7 SCOPE AND LIMITATION OF THE STUDY
The study would appraise the revenue generation for the period of five years (2006-2010) in Umuahia North Local Government Area.
This study has some limitations most especially in the area of data collection which is to be covered and has time duration of five years (i.e. 2006–2010).
Financial constraints as well as time available for the completion of the study are among other factors that would limit the scope of the study.
1.8 DEFINITION OF TERMS
LOCAL GOVERNMENT: is a form of public administration which in a majority of contexts, exists as the lowest tier of administration within a given state. The term is used to contrast with offices at state level, which are referred to as the central government, national government, or (where appropriate) federal government and also to supranational government which deals with governing institutions between states. Local governments generally act within powers delegated to them by legislation or directives of the higher level of government. In federal states, local government generally comprises the third (or sometimes fourth) tier of government, whereas in unitary states, local government usually occupies the second or third tier of government, often with greater powers than higher-level administrative divisions.
REVENUE: The amount of money that a company actually receives during a specific period, including discounts and deductions for returned merchandise. It is the “top line” or “gross income” figure from which costs are subtracted to determine net income. Revenue is calculated by multiplying the price at which goods or services are sold by the number of units or amount sold. Revenue is the amount of money that is brought into a company by its business activities. In the case of government, revenue is the money received from taxation, fees, fines, inter-governmental grants or transfers, securities sales, mineral rights and resource rights, as well as any sales that are made.
INCOME GENERATION: Money that an individual or business receives in exchange for providing a good or service or through investing capital. Income is consumed to fuel day-to-day expenditures. Most people age 65 and under receive the majority of their income from a salary or wages earned from a job. Investments, pensions and Social Security are primary sources of income for retirees. In businesses, income can refer to a company’s remaining revenues after all expenses and taxes have been paid. In this case, it is also known as “earnings”. Most forms of income are subject to taxation.
EXPENDITURE: Payment of cash or cash-equivalent for goods or services, or a charge against available funds in settlement of an obligation as evidenced by an invoice, receipt, voucher, or other such document. See also revenue expenditure, capital expenditure.
TAX: An involuntary fee levied on corporations or individuals that is enforced by a level of government in order to finance government activities. In the investing world, this is one of the most important types of taxes and, therefore, one of the most highly debated types of tax is capital gains tax. Capital gains tax represents the tax paid on the increase in value made on an investment.
TAX EVASION: An illegal practice where a person, organization or corporation intentionally avoids paying his/her/it’s true tax liability. Those caught evading taxes are generally subject to criminal charges and substantial penalties. There is a difference between tax minimization/avoidance and tax evasion. All citizens have the right to reduce the amount of taxes they pay as long as it is by legal means.
TAX AVOIDANCE: The use of legal methods to modify an individual’s financial situation in order to lower the amount of income tax owed. This is generally accomplished by claiming the permissible deductions and credits. This practice differs from tax evasion, which is illegal. Most taxpayers use some forms of tax avoidance. For example, individuals who contribute to employer-sponsored retirement plans with pre-tax funds are engaging in tax avoidance because the amount of taxes paid on the funds when they are withdrawn is usually less than the amount that the individual would owe today. Furthermore, retirement plans allow taxpayers to defer paying taxes until a much later date, which allows their savings to grow at a faster rate.
DEVELOPMENT: The process by which people create and recreate themselves and their life circumstances to realize higher level of civilization in accordance with their own choice and values.
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