THE EFFECT OF INTERNALLY GENERATED REVENUE ON ECONOMIC GROWTH

Introduction

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 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;

1. Dilapidated infrastructural facilities
2. Unavailability of social services to rural populace.
3. 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;

1. To examine the relationship between internally generated revenue and economic growth in Lagos State.
2. To ascertain the extent which value added tax has contributed to government developmental effort.
3. 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 there a 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 system which 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.