PROBLEMS OF TAX COLLECTION IN NIGERIA A CASE STUDY OF UYO LGA

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PROBLEMS OF TAX COLLECTION IN NIGERIA A CASE STUDY OF UYO LGA

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

One of the recurrent problems of the three-tier system in Nigeria, a case study of Uyo LGA is dwindling revenue generation as characterized by annual budget deficits and insufficient funds for meaningful growth and viable projects development. Local governments are the nearest government to the people at the grassroots in Nigeria, a case study of Uyo LGA; they are strategically located to play a pivotal role in national development. Since they are responsible for the governance of about 70 percent of the population of Nigeria, a case study of Uyo LGA, they are in vantage position to articulate the needs of the majority of Nigeria, a case study of Uyo LGAns and formulate strategies for their realization (Ekpo and Ndebbio, 2001).

Local administration in Nigeria, a case study of Uyo LGA can be traced to the colonial period. Available record shows that the first local administration ordinance was the Native Administration Ordinance No. 4 of 1916 which was designed to evolve from Nigeria, a case study of Uyo LGA’s old institutions the best suited form of rule based on the people’ s habits of thought, prestige and custom (Bello-Imam 1990). These local administrations were used in the north eastern and western parts of the country while the indirect rule was introduced in the rest of the north. For example, in 1926, a centralized budget system was introduced. Following the creation of Northern, Western and Eastern regions in 1946, a decentralized public revenue structure began to emerge. The first revenue commission was set up in 1946.

During the colonial period, four revenue commissioners were created. The principles, criteria and allocation formulas recommended by the commissions are well documented (Ekpo, 2004). Macpherson constitution of 1948 initiated some remarkable changes; the regions introduced some reforms in their local administrations in the 1950s which aimed at enhancing performance. Though, the reforms gave local administrations to collect rates and levy pools and income taxes to finance their activities, the regions had overall control of the taxes. Local administration lacked self-determination, hence their resource were inadequate. Though, the local authorities were partially successfully in the North but unsuccessfully in the Eastern and Western regions.

Adedeji (1990) blames the ineffectiveness of local administration on the following reasons: (a) Lack of mission or lack of comprehensive functional role (b) Lack of proper structure (i.e. the role of local governments in the development process was not known). (c) Low quality of staff; and (d) Low funding. According to him, these problems led the local governments into a vicious circle of poverty because inadequate functions and powers lead to inadequate funding which result in the employment of low skilled and poorly paid staff.

Local government administration in the country experienced fundamental changes in 1976. The 1976 local government reform created for the first time, a single-tier structure of local government in place of the different structure in the various states. Our interest in the 1976 reform hinges on the restructuring of the financial system. The reforms instituted statutory allocation of revenue from the federation account with the intention of giving local government fixed proportions of both the federation account and each state’s revenue. This allocation to local government became mandatory and was entrenched in the recommendations of the Aboyade Revenue Commissions of 1977. The 1979 constitution empowered the national Assembly to determine what proportion of the federation account and revenue form a state to allocate the local government.

In 1931, the National Assembly fixed these proportions at 10percent of the federation account and 10 percent of the total revenue of a state. In 1985, the state’s proportion was reduced to 10 percent of the internally-generated revenue; local governments’ allocation from the federation account was later adjusted to 20 percent. It was further increased to 25 per cent with the arguments that local governments are expected to take on larger developmental responsibilities. The revenue allocation has continued to vary in proportion over time. At present, local government receive 20 per cent of the federation account. In addition, proceed from the value added tax (VAT) are also allocated to them. Presently, VAT’s allocation is 35 per cent based on equity of states (50 per cent), population (35 percent) and derivation (2 percent). The 1976 local government reforms states the internal revenue sources of local governments to include: (a) Rates, which include property rates, education rates and street lighting. (b) Taxes such as community, flat rates and poll tax. (c) Fines ad fees, which include court fines and fees, motor park fees, forest fees, public advertisement fees, market fees, regulated premises fees, registration of births and deaths and licensing fees; and (d) Miscellaneous sources such as rents on council estates, royalties, interest on investment and proceeds from commercial activities.

Despite this clear demarcation, states and local government still clash over sources of internal revenue. There has been a significant increase in the number of Local Governments over the years. There were 96 divisions in 1967. By 1976, they had increased to 300. The number was increased to 774 after five yeas (Adedokun A.A. 2004) we will like to emphasize here that the rise in the number of Local Governments as implications on the assignment of public revenue responsibilities among the tiers of government. And more importantly, have effect on local government development. Development is highly associated with fund, much revenue is needed to plan, execute and maintain infrastructures and facilities at the local government level. The needed revenue collected for such developmental projects. Like construction of accessible roads, building of public schools, health care centers, construction of bridges among others are soles generated from taxes, royalties, haulages, fines and grants from states, national and international governments. Thus, the Local government cannot embark, execute and possibly carryout the maintenance of these projects and other responsibilities without adequate tax collection. This is the basic reason why development is skeletal at some Local Government councils in Nigeria, a case study of Uyo LGA.

The issue of poor tax collection is not exceptional to local governments in both Ikpoba Okha and Oredo Local Government of Edo State. This has been one of the problems encountered by most local council’s administration in Nigeria, a case study of Uyo LGA. This however pronouncedly affected development negatively in local government councils. In this research project, the issue to address is how far this poor tax collection can affect revenue generation and more importantly developmental implications for Ikpoba Okha and Oredo Local Government Area of Edo State.

1.2 STATEMENT OF THE PROBLEM

The Local Government Council takes direct care of the grassroots people that is the people in the rural areas. These groups of people sometimes lack essential facilities and condition of modern civilization. They lack pipe bore water to drink, do not have electricity, accessible roads, poor educational infrastructure and facilities to mention but a few. This is one of the major reasons of rural – urban migration of movement. This has made our cities to be congested and increase in many criminal activities.

Based on the above and foregoing assertions, it is obvious that local government has to adopt an effective taxation system which will enhance revenue generation. This no doubt is no doubt over the years has become a serious problem. the local government administration has not live up to the expectation in terms of grass root development. This might be as a result of poor revenue generation or tax collection. If Nigeria, a case study of Uyo LGA is to achieve her desired goal of vision 2020 and possibly meet the millennium development goals (MDGS) target, the issue of tax collection must be addressed squarely. Hence, the researcher is bothered to find out the importance of taxation as a source of government revenue in Nigeria, a case study of Uyo LGA.

1.3 OBJECTIVE OF THE STUDY

The broad objective of the research is to examine the problems of taxation as a source of government revenue in Nigeria, a case study of Uyo LGA. The other objective of this study includes:

i. To determine the level of modern social amenities available in Etsako West and Etsako East Local Government of Edo State.

ii. To find out the level of poverty associated with the rural people as a result of poor development

iii. To find out the degree of rural-urban migration.

iv. To make useful suggestions to solve the problem of poor tax collection as development depends on revenue generated.

1.4 RESEARCH QUESTIONS

i. Does taxation has any effect on local government revenue

ii. Does effective taxation system enhance local government development?

iii. How can revenue generation in Ikpoba Okha and Oredo Local Government of Edo State be improved?

1.5 Statement of Hypotheses

1. H0: taxation is a viable source of local government revenue

H1: taxation is a viable source of local government revenue

2. H0: There is no significant relationship between taxation and development in local governments in Nigeria, a case study of Uyo LGA

H1: There is a significant relationship between taxation and development in local governments in Nigeria, a case study of Uyo LGA

3. H0: Poor taxation policies have negative effect on local government revenue generation

H1: Poor taxation policies have positive effect on local government revenue generation.

1.6 SIGNIFICANCE OF THE STUDY

The significance of any human endeavour is measured by its relevance to solving human problems. The findings of this study would help Local Governments in Nigeria, a case study of Uyo LGA to identify the problems associated with revenue generation and its consequences on development. However, this study will be of great significance to managers of organizations, entrepreneurs, and investors especially those whose organizations’ tax are within the purview of the local government administration; as it reveals the irregular tax policies and practices that can jeopardize the effectiveness and sustenance of their businesses. It as well enable local councils capitalizes on their gains while focusing on areas of comparative advantage. Also, major beneficiaries of this study are auditors and accountants, as well as financial analysts, government personnel and the revenue taxation board will benefit from this study.

1.7 SCOPE AND DELIMITATION

The study is focused on the importance of taxation on government revenue. The study focus on the impact of revenue of Ikpoba Okha and Oredo local government, and how it affects development of the local government areas. It will also involve the analysis of problems associated wit revenue generation and its impact on the development of the local government councils.

1.8 LIMITATION OF THE STUDY

The study is confined to local government in Edo State, particularly Ikpoba Okha and Oredo local government, the study only identify with the taxation as it affects revenue of the local government areas stated above. It will also involve the analysis of problems associated wit revenue generation and its impact on the development of the local government councils.

1.9 DEFINITION OF TERMS

Some concepts require proper explanation to enhance our understanding of the theme where necessary opinion of scholars will be cited to explain the terms. The researcher will also give some fundamental definition of terms.

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 O.S. 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.

Taxation: Therefore is the process of imposing levies, taxes and other duties on an individual or body, therefore, sourcing revenue for the local government in carryout their aim and objectives.

Local Government: According to Lawal (2000) Local 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. According to William Robson (2006) Defined Local Government as involving the conception of territorial, non-sovereign community possessing the legal right and the necessary organization to regulate its own affairs.

Revenue: 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.

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 evasion: Tax evasion means illegal reduction in one’s tax liabilities, thereby paying less than the appropriate amounts and not paying at all.

Tax avoidance: Tax avoidance 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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