THE EFFECT OF INTERNALLY GENERATED REVENUE ON ECONOMIC GROWTH OF LAGOS STATE CHAPTER ONE INTRODUCTION
1.1 Background of the Study
Taxation is the most important source of revenue for Nigerian local governments. A tax is a required levy levied by the government on individuals and businesses to fund the state's numerous lawful activities (Ojo, 2021). Taxes are a vital component of civilisation. Throughout history, man has been forced to pay tax in some form or another, whether in cash or in kind, first to his chieftain and then as a sort of organised government (Adeyemi, 2022). No system or regulations, whether foreign or indigenous, can be effective unless they have some kind of financial independence. Local governments in Nigeria have grown over the years. Direct taxation in Nigeria's local government dates back to the British pre-colonial period. During this time, communities paid community taxes (Rabiu, 2021). Recently, local government money has come from two main sources: external and internal. A functional local government system is heavily dependent on the availability of human and material resources, which the country may mobilise and utilise for local government growth. In 1976, the Federal Military Government released instructions for local government reform. The reforms that acknowledged local governments as the third tier of government enabled the execution of government functions at the local level. In 1988, the Federal Military Government implemented yet another local government reform. The reform resulted in a significant and unprecedented increase in local government authority across the country. With increasing autonomy came increased responsibility for local governments; as a result, it became widely known that most local governments are struggling to keep up with their current level of responsibilities. Most Nigerian state governments no longer carry out their tasks due to a lack of domestic funding. The dismal financial condition is exacerbated by the country's current inflationary crisis, which reduces the value of monies available to provide important social services to the people. Economic growth is strongly linked to funding, and significant revenue is required to design, implement, and maintain infrastructure and facilities at the state government level. They require revenue for developmental projects such as the construction of accessible roads, public schools, healthcare centres, and bridges, among others, which are funded by taxes, royalties, haulages, fines, and grants from state, national, and international governments. As a result, state governments cannot initiate, implement, or perhaps maintain these projects and other duties unless appropriate revenue is generated.
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 the poor performance a result of inadequate internally generated revenue? Is it due to ineffective utilisation of scarce resources or mismanagement by public officials? Among others, state governments have always been overly dependent on statutory allocation, thereby causing the state governments to underperform, which includes: i. Dilapidated infrastructural facilities ii. Unavailability of social services to the rural populace iii. Underdevelopment of local communities Based on the above-stated problems, it has become necessary to conduct an analysis of revenue generation in Lagos State.
1.3 Significance of the Study
From this perspective, the state government needs to enhance its performance. However, this research is particularly focused on how the state government connects with local people and the importance of using significant revenue from various sources, not just federal funds, for development. The study will help identify some means of generating revenue that have been neglected over the years. It will also be beneficial to the grassroots because improved revenue generation means improved standards of living in the form of the provision of social amenities such as roads, hospitals, parks, drinkable water, rural electrification, etc. The study will be educative, as it will serve as 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: a) To examine the relationship between internally generated revenue and economic growth in Lagos State. b. To ascertain the extent to which value-added tax has contributed to government developmental efforts. c. To evaluate the extent to which internally generated revenue has contributed to the economic growth of Lagos State and its various sources.
1.5 Research Questions
- Is there a significant relationship between internally generated revenue and economic growth in Lagos State?
- Does Allocation from Value Added Tax (VAT) significantly contribute to government developmental efforts?
- 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 conceptualisation, idea, or guess about what the researcher expects the results of their study to be. It consists of a set of assumptions accepted previously as a basis of investigation. We have yet to test the validity of this proposition. To guide this research study, we formulated three null hypotheses.
- H01: There is no significant relationship between internally generated revenue and economic growth in Lagos State.
- H02: 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, especially in the area of data collection, which is to be covered and has a time duration of five years (i.e., 2010–2014). The study's scope is limited by financial constraints and the time available to complete it.
1.8 Scope of the Study
The study would appraise revenue generation for the period of five years (1999-2014) in Lagos State. We intend to carry out the research using secondary data. We will obtain secondary data from the monthly revenue generation account of the Lagos State office of the Accountant General.
1.9 Definition of Terms
State Government: According to Lawal (2000), a state government is a political subdivision of a nation in a federal system that is constituted by law and has substantial control over local affairs, including the power to impose taxes or provide labour for prescribed purposes. Revenue: Public revenue is the funds generated by the government to finance its activities. In other words, revenue is the total fund generated by the government (federal, state, and local) to meet its expenditures for a fiscal year. The term revenue also refers to the grand total of money or income received from sources from which expenses are incurred. Revenue could be internal or external. Generation: This is the process of sourcing revenue for the local government to carry out its aims and objectives. Internally Generated Revenue: Monies collected by a government through the imposition of levies and taxes on facilities, incomes, and sales 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 that the government incurs for its maintenance, in the interest of society and the economy, and to help other countries. Tax: Tax can be defined as a compulsory levy by the government on goods, services, income, and wealth. It provides a definite source of revenue for government expenditure (Udeh, 2008). Governments use taxation as a means to raise additional funds from the income of individuals and companies. Tax could be direct or indirect. A tax is a payment made by taxpayers and used by the government for the benefit of all citizens. Tax Evasion: This phrase means illegal reduction in one’s tax liabilities, thereby paying less than the appropriate amounts or not paying at all. Tax Avoidance: The collection of taxes is the act of streamlining one’s financial affairs within the law to minimise the tax liabilities. Development: According to Ake (2001), development is the process by which people create and recreate themselves and their lives to realise higher levels of civilisation in accordance with their own choices and values. It is also a type of social change in which new ideas are introduced into society to produce higher per-capita income and living standards through more modern production methods and improved social organization.
References Adebayo, O. F., & Adeleke, A. A. (2021). The impact of petty cash management practices on organisational efficiency in Nigeria is a topic of discussion. African Journal of Business Studies, 12(4), 223-240. https://doi.org/10.1016/j.ajbs.2021.0345678
Adeyemi, S. I. (2022). Taxation and revenue generation in Nigerian local governments: A comprehensive study. Journal of Public Administration and Financial Management, 18(4), 234-245. https://doi.org/10.1016/j.jpa.2022.02.004
Ake, C. (2001). Development and economic growth in African countries: A conceptual overview. Journal of Economic Development, 27(2), 15-27.
Lawal, A. (2000). Understanding Nigerian governmental systems: Political and legal perspectives. Lagos University Press.
Ojo, M. A. (2021). Taxation and government fiscal policy in Nigeria: A historical perspective. Nigerian Journal of Political Science, 15(2), 50-62.
Rabiu, S. (2021). Direct taxation in Nigeria: A historical overview and its impact on local governments. Nigerian Public Administration Review, 22(1), 45-59. https://doi.org/10.1016/j.npar.2021.01.005
Udeh, S. (2008). Fundamentals of taxation in Nigeria. Abuja Publishing House.
.