CHAPTER ONE

INTRODUCTION

Background to the Study

Internally Generated Revenue (IGR) denotes the revenue that the federal, state and local governments generate within their respective areas of jurisdiction (Abiola & Ehigiamusoe, 2014). IGR for State governments has also been described as revenues that are derived within the state from various sources such as taxes (pay as you earn, direct assessment, capital gain taxes, etc.) and motor vehicle license, among others (Adenugba & Chike, 2013). According to Asimiyu and Kizito (2014), economic development and sustainability of states in Nigeria depend on the ability of such states to generate revenue internally to supplement the revenue allocation from federation account. In other words, federal allocations are not sufficient to guarantee economic development of states and local governments, hence the emphasis on local generation of revenues to sustain the economy of the nation locally and at the federal level. Ola and Tonwe (2003) described IGR as the live wire of a local government, which implies that, the existence and sustenance of a local government area depends on their ability to generate sufficient revenue. Considering the fact that local governments have control over IGR economic development is made possible and faster. However, the capacity of a local government to receive IGR is one of the criteria and critical consideration for the creation of a local government (Olusola & Siyanbola, 2014). Looking at the theoretical and empirical evidence on how state governments could increase IGR capable of absorbing increasing recurrent and capital expenditures of states, Ekankumo and Braye (2011) submitted that economic development and viability of states in Nigeria depend on the ability of a state to boost IGR which is not only dependent on tax, but through entrepreneurial options which will help to complement the revenue from statutory account. Kiabel and Nwokah (2009) in their investigation on what could help states generate more IGR argued that the use of External Tax Consultant provides the solution since states could collect more tax through the consultant’s efforts and initiatives. With the persistent economic situation globally and locally, there have been urgent needs for Nigerian government to diversify the economy and stop concentrating on oil and gas. Regrettably, Nigeria’s reliance on the oil sector is too critical and the adverse effect of Nigeria’s declining oil revenue has had such negative impacts that the Federal Government can no longer handle. State governments who solely depend on the allocations from the federation account are finding it difficult to meet with their obligations such as payment of salaries, provision of public goods and services, provision of affordable and qualitative education and healthcare services. One of the major challenges the present administration encountered on assumption of office was the non-payment of salaries by some states to their workforce. The federal government managed the situation through granting of bailout funds to the affected states to settle payroll costs and other recurrent expenditure (Delloite, 2016); but despite this intervention by the federal government, many states are still in arrears of salaries to their workers. It is only Rivers and Lagos States that possess the capacity to pay salaries if there are no federal allocations. Balogun (2015) stated that Nigeria’s revenue in the 1970s was majorly from Agricultural sector. The four regions that made up Nigeria (North, East, West and the Mid-West) were giants in exporting agricultural products. The North was known for its groundnuts, cotton, hides and skin; the East for its palm produce and coal; the West for its Cocoa and the Mid-West for its rubber and timber. The individual regions made use of the revenues to develop their areas while revenue balance is remitted to the Federal Government. Unfortunately, this rich source of IGR in the Nigerian regions providing unlimited economic development has been sacrificed at the dwindling ‘altar of oil’. The undue dependence on statutory allocations has become a major constraint why most Nigeria States cannot perform basic functions (Balogun, 2015). Nnanseh and Akpan (2013) believe that IGR is capable of providing adequate basic infrastructures in a state citing Ogun state State as case where IGR contributed so much in the provision of water, roads and electricity. Oseni (2013) posit that IGR is mainly used to offset the high cost of governance by the second and third tiers of government. Therefore, mismanagement of IGR by political leaders and local government officials remains a serious challenge as it affects the economic development in local government areas.

Statement of the Problem

In recent years, it has become increasingly difficult for state governments to fulfil their statutory obligations because of the costs involved. The general concern over the seemingly slow development of the rural areas in Nigeria has created a doubt as to the relevance of some state governments in Nigeria whose primary function is to effect a representative government faster and closer to all the areas of state land. Inadequacy of funds for various developmental projects stands as the cause for these shortcoming despite the increasing revenue allocation from the federation account to the state governments. Hence, the reasons for the various avenues granted the state governments to generate revenues themselves. The most severe problem facing public institutions is a fiscal one, particularly in the state government. The fiscal problem is often birthed by factors including over-dependence on statutory allocations from the state and federal governments, deliberate tax evasion by the local citizenry, creation of non-viable local government areas that is not self-sustaining and cannot cater for its local populace, differences in the status of state governments in terms of rural-urban dimension leading to variation in internal revenue, inadequate revenue and fiscal jurisdiction.

For financially healthy state governments to exist, responsibilities and functions must be allocated in accordance with their taxing power and ability to generate funds internally. The constitutional provision that recognizes local government’s power in this regard must give them full freedom to operate and this must be well granted and adequately protected. These measures, coupled with a review of the revenue sharing formula, the granting of fiscal autonomy and fiscal discipline as well as making local governments responsive, responsible and accountable to the people will set local governments free from fiscal stress promoted and strengthened by the 1999 constitution.

 The state government is faced with myriads of problems ranging from corruption and embezzlement, poor financing, mismanagement of funds to poor leadership. This obviously has deterred the development of state government in Nigeria. However, the most important problem of state government is the revenue generation.

Based on the above slated problems, it has become necessary to conduct a research analysis on the problem of revenue generation in Nigeria of which Abeokuta North Local Government will be a case study.

Objectives of the Study

The main objectives of this study is to find out the effects of IGR on the wellbeing and growth/development in Nigeria; specifically the study intends to:

1.     Find out the effects of IGR on the socio economic lifestyle of people in Ogun state

2.     Find out how IGR affects the development of Ogun state

3.     To compare the growth of Ogun state and other state.

Research Questions

The following questions were formulated from the objectives above to guide the study arrive at valid conclusion

1.     What is the effects of IGR on the socio economic lifestyle of the people in Ogun state

2.     What is the effects of IGR on the development of Ogun state

3.     What is the growth of Ogun state compared to other state?

Significance of the Study

From historical precedence, it is obvious that there is underperformance of the governments and there is need for the state government to improve their performance. However, this research will significantly consider the actions and inactions of the government at the grassroots as regards question of revenue generation and the need to utilize substantial revenue from its various sources in addition to federal and state statutory allocation for developmental purpose. The study will also help in identifying some means of generating revenue that has been neglected over the years. It will also be beneficial to grassroots because improved revenue generation means improved standard of living in form of provision of social services and amenities such as roads, hospitals and primary health centers, local parks, drinkable water, rural electrification, etc. The study will most importantly take into consideration the fiscal issues, deficiencies and challenges of generating and utilizing revenue in the Abeokuta North Local Government of Ogun State, analyze facts and figures about revenue status of the local government and make recommendations which will be invaluable for educationists, researchers and political office holders.

Scope of the study

The study is focused on revenue generation and how it affects development of the local government areas. It will also involve the analysis of problems associated with revenue generation and its impact on the development of Ogun state. The whole of Ogun state cannot be studied at once to some constraint so Abeokuta North Local Government will be chosen for the study.