THE EFFECT OF INTERNALLY GENERATED REVENUE ON ECONOMIC GROWTH OF LAGOS STATE (2010-2014)
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THE EFFECT
OF INTERNALLY GENERATED REVENUE ON ECONOMIC GROWTH OF LAGOS STATE (2010-2014)
CHAPTER ONE
INTRODUCTION
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 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 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.
Most state
governments in Nigeria do no longer perform their responsibilities simply
because of poor finances arises from internally generated revenue. 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. Economic growth is highly associated
with fund, much revenue is needed to plan, execute and maintain infrastructures
and facilities at the state government level. They need revenue generated for
such developmental projects like construction of accessible roads, building of
public schools, health care centers, construction of bridgesamong others are
sources generated from taxes, royalties, haulages, fines and grants from
states, national and international governments. Thus, state government cannot
embark, execute and possibly carryout the maintenance of these projects and
other responsibilities without adequate revenue generation.
1.2 Statement of the problem
The state
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 state government in Nigeria. The major issues
are; what has contributed to the non-performance; is it because of total
dependence on federal 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, state
government has always been over dependent on the statutory allocation thereby
causing the state government to underperform which includes;
Dilapidated infrastructural facilities
Unavailability of social services to rural
populace.
Underdevelopment of local communities.
Based on the
above stated problems, it has become necessary to conduct an analysis on
revenue generation in Lagos State.
Significance of the study
From the
outlook, there is need for the state government to improve their performance.
However, the research is significantly consideringthe closeness of state government
to the grassroots’ people and theneed to utilize substantial revenue for its
various sources in addition to federal 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.
1.4 Objectives of the study
The broad
objective of this research is to evaluate the effect of internally generated
revenue on the economic growth of Lagos State.
The specific
objectives are;
To examine the relationship between
internally generated revenue and economic growth in Lagos State.
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 the economic growth in Lagos State and it
various sources.
1.5 Research questions
1. Is therea
significant relationship between internally generated revenue and economic
growth in Lagos State?
2. Does
Allocation from Value Added Tax (VAT) significantly contribute to government
developmental effort?
3. Is there
a significant relationship between statutory allocation to the state government
and economic growth in Lagos State?
1.6 Research hypotheses
A hypothesis
is a theoretical conceptualization or an idea or guest regarding how 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 significant relationship between internally generated revenue and
economic growth in Lagos State.
• H02:
Allocation from Value Added Tax (VAT) does not significantly contribute to
government developmental effort.
• H03: There
is no significant relationship between statutory allocation to the state
Government and economic growth in Lagos State.
1.7 Limitations of the study
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. 2010–2014). 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 Scope of the study
The study
would appraise the revenue generation for the period of five years (1999-2014)
in Lagos State. The research is intended to be carried out using secondary
data. Secondary data will be obtained from the monthly revenue generation
account from the office of Accountant General of Lagos State.
1.9 Definition of terms
State
Government: According to Lawal (2000) State Government as a political
sub-division of a nation in Federal systemwhich is constituted by law and has
substantial control of local affairs which includes the power to impose taxes
or exact labor for prescribed purpose.
Revenue:
Public revenue could be defined as the funds generated by the government to
finance its activities. In other words revenue is the total fund generated by
government (Federal, state, local government/ to meet their expenditure for a
fiscal year. This refers also to the grand total of money of income received
from the source of which expenses are incurred. Revenue could be internal or
external revenue.
Generation:
This is the process of sourcing revenue for the local government in carryout
their aim and objectives.
Internally
Generated Revenue: Monies collected by a government through imposition of
levies and taxes on facilities, incomes, sale of goods and services.
Growth: An
increase in the capacity of an economy to produce goods and services, compared
from one period of time to another.
Economy: The
state of a country or region in terms of the production and consumption of
goods and services and the supply of money.
Economic
Growth: An increase in the amount of goods and services produced per head of
the population over a period of time.
Expenditure:
Public expenditure refers to the expenses which the government incurs for its
own maintenance, in the interest of the society and the economy in order to
help other countries.
Tax: Tax can
be defined as a compulsory levy by government on goods, services, income and
wealth. It provides definite source of revenue for government expenditure.
(Udeh 2008). It is the way by which government obtain extra money. It spent
from income of individual and companies. Tax could be direct or indirect tax. A
tax is a payment made by the taxpayers and used by the government for the
benefits of all the citizens.
Tax
Evasion:This means illegal reduction in one’s tax liabilities, thereby paying
less than the appropriate amounts and not paying at all.
Tax
Avoidance:This is the act of streamlining one’s financial affairs within the
law so as to minimize the tax liabilities. Development: According to Ake (2001)
Development is thus the process by which people create and recreate themselves
and their life circumstances to realize higher levels of civilization in
accordance with their own choice and values. It also a type of social change in
which new ideas are introduces into a social in order to produce higher
per-capital income and levels of living through more modern production methods
and improved social organization.
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