Chapter one

Introduction

1.1       Background to the study

Road​‍​‌‍​‍‌​‍​‌‍​‍‌ taxes are among the oldest and most commonly used measures of public finance that governments employ not only to control transport systems but also to raise funds for the development of the necessary infrastructure. In essence, road taxes symbolize a set of coerced financial obligations, which have to be fulfilled by the users of roads, the owners of vehicles as well as the providers of transport to get the right of accessing, utilizing, or in any way influencing the facilities of roads(Olaoye & Afolabi 2020). These levies are potentially interchangeable in many ways such as the fees for the registration of vehicles, the cost of issuing driving licenses, payments for obtaining roadworthiness certificates, the imposition of axle-load charges, and the collection of toll fees, which are among the many types of regulatory charges related to the use of motor vehicles.

Usually, governments defend the charging of road taxes by invoking the utility or benefits principle of taxation, which stipulates that those persons who derive the greatest utility from the provision of a public good like a road network ought to be the ones to shoulder the heaviest burden of the costs of its maintenance (Musgrave & Musgrave, 2019). As roads wear off with use, in particular by heavy trucks and freight operators, the road taxes have the merit of being a very effective tool among others to make sure that such transport users will have to pay for the maintenance of the system ​‍​‌‍​‍‌​‍​‌‍​‍‌directly.

In​‍​‌‍​‍‌​‍​‌‍​‍‌ addition to being the main source of power for road infrastructures, road taxes are also used as tools to regulate the system for the purpose of safety, to lessen the traffic, and to avoid the destruction of the roads. To give an example, road inspections guarantee that vehicles are not only safe but also that they do not pollute the environment. As a result, accident numbers and emissions are on the decline. In the same way, axle-load tariffs push users to hage the load as less as possible, this well-known method will ensure that the lifespan of the road will not drastically decrease and that higher costs for maintenance will not be generated.

Toll gates have become the most widespread tool to cover the expenditure of new road projects through public–private partnerships in many developing countries, thus the governments are able to extend road networks without exhausting the already restricted public budgets (World Bank, 2022). Consequently, road taxes are not simply the starting point for road infrastructures, but they also work as a system of transport that is more efficient and environmentally ​‍​‌‍​‍‌​‍​‌‍​‍‌friendly..

When​‍​‌‍​‍‌​‍​‌‍​‍‌ countries grow, become more urban, and have a higher demand for the movement of people and goods, the role of road taxation becomes even more significant. Globally, vehicle ownership is increasing, and road transport is still the main way of moving goods and people, especially in developing countries where rail systems are either very limited or poorly developed. The trend is putting so much pressure on road infrastructure that the financial burden of governments in charge of road construction and maintenance is also increasing(World Bank, 2022). In situations where public funds are limited, road taxes constitute a steady and time-tested source of revenue that can be used to develop the transport sector even during times of economic instability. It is this source of income whose stability makes it especially important for governments that are looking for sustainable and long-term funding solutions for the development of ​‍​‌‍​‍‌​‍​‌‍​‍‌infrastructure.

The​‍​‌‍​‍‌​‍​‌‍​‍‌ total revenue subnational governments like states, provinces, or local governments, which they generate within their jurisdictions without the need for federal or central government allocations is what internally Generated Revenue (IGR) means. Internally Generated Revenue usually is the amount collected through the taxes, fees, licenses, fines, profits from government enterprises and in general, any revenue that arises from the economic activities within the locality (Olaoye & Afolabi, 2020). The idea of Internally Generated Revenue becomes a turning point in the discussion of public finance as it is the measure of fiscal autonomy and the financial capacity of subnational governments to be able to deliver their developmental responsibilities. Governments, which generate high Internally Generated Revenue, can better execute their budgetary plans, get into the business of infrastructure, and provide necessary public services like education, healthcare, sanitation, and transportation. Besides, Internally Generated Revenue also serves as a vehicle to promote accountability and efficiency in governance since people can oversee more directly how their taxes are being utilized when the revenue is generated locally instead of being taken from external ​‍​‌‍​‍‌​‍​‌‍​‍‌allocations.

In​‍​‌‍​‍‌​‍​‌‍​‍‌ a number of countries, particularly those with a federal political structure, Internal Revenue is the mainstay of the financial system of state and local governments. Allocations from the central government, although still very significant, change from time to time depending on macroeconomic conditions such as oil price shocks, a decrease in exports, or shortages of national revenues (Agu et al., 2021). Therefore, subnational governments that are dependent on federal transfers may face financial instability, budget deficits, and delays in the implementation of development projects. Hence, reinforcing the Internally Generated Revenue is considered a measure not only to improve the fiscal sustainability level but also to elevate the economic growth rate and lessen the dependency on the central government (Agu et al., 2021). The leading elements of Internally Generated Revenue like personal income tax, business licenses, property taxes, and road taxes are, therefore, the main factors that constitute the subnational revenue ​‍​‌‍​‍‌​‍​‌‍​‍‌systems.

Internal​‍​‌‍​‍‌​‍​‌‍​‍‌ revenue generation is crucial for subnational governments; however, a large number of them are still struggling with the challenge of generating sufficient internal revenue. The performance of Internally Generated Revenue is often weakened by factors such as poor tax administration, limited economic activity, low tax compliance, lack of enforcement mechanisms, and corruption. A large number of potential taxpayers are in the informal sector, which makes it very difficult to track income and enforce tax obligations. Besides, public mistrust in government institutions can be a factor that discourages voluntary tax compliance. This is especially the case when citizens see that the revenue is being misused or not utilized for visible development projects. As a result, governments have to look at the specific revenue sources and empower them if they are to be able to contribute significantly to the Internally Generated Revenue, for instance, road taxes, if they are effectively ​‍​‌‍​‍‌​‍​‌‍​‍‌administered..

The​‍​‌‍​‍‌​‍​‌‍​‍‌ connection of road taxes with Internally Generated Revenue (IGR) reveals how the funding of transportation is linked with local fiscal sustainability. For several regions, road taxes form a hefty portion of the IGR portfolio because of the wide tax base and the quite predictable nature of the sector. Almost every household and business use road transport, therefore road taxation is one of the most dependable sources of recurring revenue. Take vehicle registration fees as an example; they have to be renewed regularly, thus assuring a continuous flow of money to government treasuries. Likewise, roadworthiness checks, driving license renewals, and transport operator permits create a steady inflow of funds throughout the year. Due to these features, road taxes are considered more stable than other sources of revenue which may be subject to business cycles or heavily influenced by economic ​‍​‌‍​‍‌​‍​‌‍​‍‌performance.

Moreover,​‍​‌‍​‍‌​‍​‌‍​‍‌ the organization that handles road taxes is generally very detailed and includes such departments as motor licensing authorities, vehicle inspection services, and road transport agencies. These agencies, if they are well managed, can enable very efficient collection mechanisms, which, in turn, can significantly reduce the incidences of tax evasion. Since every vehicle is required to be registered by law and road inspections are obligatory, it is less difficult for governments to ensure that taxpayers comply with the law in comparison to taxes on informal business activities. Therefore, the relatively formalized nature of road taxation is one of the factors that enhance its contribution to Internally Generated ​‍​‌‍​‍‌​‍​‌‍​‍‌Revenue (Okoye & Eze, 2022).

The​‍​‌‍​‍‌​‍​‌‍​‍‌ economic consequences of road taxes thus highlight their significance to IGR. Road taxes, by contributing to the upkeep and extension of the roads, enhance transportation, lower the cost of vehicle use, save travel time, and make trade easier. As transport gets better, economic activity grows, thus raising productivity and government revenue from other tax sources. For instance, roads in good condition become the source of business growth, investors' attraction, cost reduction in logistics, and revival of local markets. These indirect advantages, therefore, operate a multiplier effect whereby road taxes become not only the direct contributors to Internally Generated Revenue but also the facilitators of the economic environment, which is the base for other revenue streams, hence, increasing IGR ​‍​‌‍​‍‌​‍​‌‍​‍‌further.

Nevertheless,​‍​‌‍​‍‌​‍​‌‍​‍‌ the increment of such Internally Generated Revenues through the road taxes is highly dependent on the quality of governance, transparency, and enforcement. Consequently, poor institutional capacity, corruption, leakage of revenues, and the existence of informal or unregulated transport operators may lead to the decrease of performance in road tax administration. For example, in many developing countries, most of the revenues that should be paid into government accounts are lost in the processes of manual collection or through middlemen who are not authorized (Aderibigbe, 2021). Moreover, taxpayers who assume that their road taxes will not result in improved road conditions are more likely to resist compliance. This gap between perception and reality poses a threat to the potential of road taxes in generating revenues if the government does not assure transparency and show visible progress in infrastructure with the taxes collected.

To put it simply, road taxes and Internally Generated Revenue are two sub- components that are closely linked to fiscal sustainability at sub- national level. Road taxes are essentially a source of internally generated funds, which, if effectively managed, can be a major driver of financial independence of states and local governments. Governments, through the effective use of road taxation in their overall revenue-generation strategies, will be able to enhance their fiscal capacity, provide the needed infrastructural investment, and at the same time, promote the economic growth. The study of road taxes' contribution to IGR is thus a gateway to recognizing the potential of the transport sector as a source of revenue necessary for financial stability, good governance, and long-term ​‍​‌‍​‍‌​‍​‌‍​‍‌development.

1.2 Statement of the problem

Despite the strategic importance of road taxes as a source of Internally Generated Revenue (IGR), Abia State has continued to struggle with low and irregular revenue performance between 2010 and 2023. Although the state imposes various road‐related levies such as vehicle licensing fees, roadworthiness charges, and other transport-related taxes the actual revenue collected remains far below its estimated potential. This gap raises concerns about persistent issues such as weak enforcement mechanisms, inefficient tax administration, leakages and corruption in collection processes, lack of accurate data on taxable road users, and widespread non-compliance among motorists. As a result, the state remains heavily dependent on federal allocations, limiting its ability to finance road infrastructure, support economic activities, and provide essential public services. The problem, therefore, is that while road taxes should significantly contribute to Abia State’s IGR, their actual impact appears limited, inconsistent, and poorly documented, creating a need for an empirical assessment of their contribution over the period 2010–2023.

1.3 objectives of the study

The objective of the study is to examine The Contribution of Road Taxes to Internally Generated Revenue (IGR)  of Abia State, Nigeria 2015-2020. Other specific objectives include:

i) To examine the relationship between road taxes and internally generated revenue of Abia state from 2015-2020?

ii) To outline the main sources of internally generated revenue of Abia state from 2015-2020?

iii) To outline the challenges faced by the Abia state government in collection of  road taxes in generating internal revenue for development of the state

1.4 research questions

The following research questions shall guide this study and in the course of this research, we shall attempt to find answers to the following questions:

i) What is the relationship between road taxes and internally generated revenue of Abia state from 2015-2020?

ii) What are the main sources of internally generated revenue of Abia state from 2015-2020?

iii) What are the challenges faced by the Abia state government in collection of  road taxes in generating internal revenue for development of the state?

1.5 significance of the study

The significance of this study lies in its potential to provide a deeper understanding of how road taxes contribute to Internally Generated Revenue (IGR) in Abia State between 2010 and 2023, a period marked by shifts in tax administration, economic fluctuations, and increasing pressure on states to improve revenue independence. For the government, the study offers practical insights into the actual financial value of road taxes and how effectively they have been collected and managed. This is important because many state governments in Nigeria depend heavily on federal allocations, which are often unstable. By highlighting the level of revenue generated through road taxes and identifying areas of inefficiency such as leakages, weak enforcement, and informal revenue collectors, the study provides evidence that can guide more strategic fiscal planning. It helps the government know where reforms are needed and how road taxes can be better harnessed to reduce dependence on federal funding and improve financial sustainability.

For policymakers, the study is significant because it provides empirical information that can support the formulation and adjustment of transport-related tax policies. Policymakers require accurate data to design realistic and effective tax laws, and the study’s findings can reveal whether the existing tax structures within the 2010–2023 period were adequate or require major reforms. It helps policymakers assess whether current road tax rates are appropriate, whether enforcement mechanisms are effective, and how digital tax systems or unified transport revenue frameworks could improve compliance. The study also offers policy makers a clearer understanding of how informal actors such as unregistered transport unions and illegal checkpoints affect revenue outcomes. This evidence can be used to draft policies that close loopholes, improve transparency, and modernize tax administration systems to align with global best practices.

Students of taxation will find the study valuable because it provides real-world application of concepts learned in class. It exposes students to the practical workings of revenue generation in a subnational context and demonstrates how theoretical principles like tax compliance, revenue mobilization, and fiscal autonomy apply to everyday governance. By analyzing trends from 2010 to 2023, students gain an understanding of how economic events, administrative reforms, and human behavior influence the success of public finance systems. The study also exposes students to empirical research methods commonly used in taxation studies, such as regression analysis, descriptive statistics, and trend analysis, thereby contributing to their academic growth and readiness for future research or professional practice.

To researchers, the study provides a foundation for expanding the academic literature on public finance and taxation in Nigeria. There is limited research focusing specifically on the contribution of road taxes to IGR in Abia State, especially within a long temporal framework like 2010 to 2023. Therefore, the study fills a gap by providing updated data, trends, and interpretations that future researchers can build upon. It also identifies gaps in existing studies such as the impact of informal revenue collectors, the role of digital tax administration, and long-term effects of road infrastructure on revenue performance which future scholars can explore in greater depth. Additionally, the study’s methodological approach and analysis can serve as a reference point for researchers conducting similar studies in other states or regions. Overall, the study is significant because it contributes to improved revenue governance in Abia State, enriches academic knowledge, informs policy development, and supports evidence-based decision-making for multiple stakeholders.

1.6 scope and limitation of the study

The study is delimited to The Contribution of Road Taxes to Internally Generated Revenue (IGR)

 of Abia State, Nigeria  2010 to 2023. The researcher was faced with the following constraints in carrying out this study:

Resources: Another constraint of the researcher is financial resources to carry on the detail study of this topic.

Data: Another limitation to this study will be lack of data to make valid study on the research problem.

1.7 plan of the study

The present study is divided into five chapters. First chapter gives the background to the study, statement of the problem etc. Second chapter deals with relevant studies found in the literature and that are related to the  i.e. review of literature. Third chapter deals with the methodology and procedure used in this study  Fourth chapter deals with the analysis of data and presentation of the study which evaluates the data collected keeping in mind the set objectives. Fifth chapter deals with conclusions and suggestions which are derived from this study.

1.8 Definition of terms

Road Taxes : Road taxes are compulsory payments imposed by a government on vehicle owners or road users to generate revenue specifically for the construction, maintenance, and regulation of road infrastructure. They may include vehicle registration fees, annual vehicle licensing fees, tolls, and fuel taxes. Road taxes help fund transportation systems and ensure that those who use the roads contribute to their upkeep.

 Internally Generated Revenue : Internally Generated Revenue (IGR) refers to the income that an organization especially a government body, public institution, or agency raises from its own sources rather than from external allocations or grants. These revenues typically come from fees, taxes, charges, licenses, fines, investments, and other economic activities that the institution controls. IGR is important because it enhances financial autonomy and reduces reliance on external funding