CHAPTER ONE
INTRODUCTION
1.1 Background of Study
Local government plays a crucial role in the delivery of services to the
citizenry. The success of any local government is its ability to utilize its
human and material resources to achieve the desired objectives i.e. rendering
needed services to the community. Local government is a government in
which popular participation both in the choice of decision makers and in its
recognition of a third tier of government. Prior to 1976, however, Nigerian
local government has passed through various reforms. These reforms and reorganizations have affected the system financially, administratively,
politically and functionally.
The historical evolution of the local government system in Nigeria
dates back to the colonial era when it was called the colonial native authority
system which existed between 1920’s and 1930’s (Orewa and Adewumi
1983). In their form, they represented a system of indirect rule whose aim
was to establish a system of local authorities through traditional authorities.
The main task of local government in this era was maintenance of law and
order at grass root level. Also the issue of revenue generation in the local 2
government system has been in existence since in this traditional system of
local government. In pre-colonial Nigeria the Chiefs, Obas and Emirs were
responsible for revenue generation. This they usually did through levies and
taxes, which they used in managing their communities. During the colonial
era the British especially in the North introduced a system of indirect rule in
which direct taxes were introduced in various local communities for running
their affairs. By 1933, the powers of the local authorities were extended to
cover expanded functions due to reliable performances. After the
independence in 1960, local governments acquired more responsibilities that
were assigned to them by the constitution. For instance, section 6 of the 1979
Constitutions of Nigeria provides that:
The functions to be conferred by law upon local
government council shall include those spelt out in
fourth schedule to this constitution
Also the constitution made provision for substantial funds to local
councils. This is because there is no doubt that sound financial base is a
prerequisite for effective performance of the roles assigned to local
government. For instance, section 7(6) of the 1999 Constitution makes
provision for the funding of local government as follows;3
a) The National Assembly shall make provision for statutory allocation
of public revenue to local government councils in the federation; and
b) The House of Assembly of a state shall make provisions for statutory
allocation of public revenue to local government councils within the
state.
More specifically, provision was made under the Revenue Allocation Act
of 1981 for statutory allocation of 10 percent of national revenue to local
government, became operational in 1989 and 20 percent in 1992. (Idike
1995:1). In addition, state governments were required to contribute 10
percent if their internally generated revenue to local government (Dasuki
Report, 1985).
Under this fiscal arrangement, local government depended mainly on
State and Federal Governments for revenue and grants. This source of
revenue is in some cases unreliable and unstable. This is due to the fact that
most state government have failed to release 10 percent of their internally
generated revenue to their local governments. In addition, some State
Governments interfere with the statutory allocations to local governments.4
It is in recognition of this that the originators of 1976 Local Government
Reform made genuine efforts to assist the local government system
financially. For instance in 1976, the Federal Military Government after the
reform as it was contained and noted in the Guidelines for Local Government
Reform 196:11) stated that:
Lack of adequate funds and appropriate institution
has continued to make local government ineffective
and ineffectual. In embarking on the reforms, the
Federal Military Government was essentially
motivated by the necessity to stabilize and
rationalize government at the local level. This must
entail the decentralization of some significant
functions of state government to local levels in
order to harness local resources for rapid
development.
This gave rise to provision of different sources of internal revenue
generation for Nigerian local government in our subsequent constitutions.
Also various measures were taken to take care of the financial problems of
the local system. For instance there are many Edicts in various states like
Anambra State Edict (1976) in favour of other sources of revenue for the
local government system..
The aim for provision of internal sources of revenue generation to
Njikoka local government is to supplement the statutory allocations from5
both federal and state government. It is assumed that if local government can
satisfactorily generate a large proportion of its revenue internally, it will
cease relying heavily on the statutory allocations. Despite these constitutional
provisions for sources of internal revenue, Njikoka local government and
some other local government s in Nigeria are still unable to tap all these
internal sources. Hence, the problem of poor internal generated revenue in
most local government in Nigeria.
It is on this background that this study tends to examine factors that
constitute impediments to maximum generation of internal revenue in
Njikoka local government of Anambra state.
1.2 Statement of the Problem
In the words of Oguonu (2000:136) “what makes the difference
between local governments is the ability of a local government to internally
generate revenue”. The inability to generate income apart from resources
from the federal government, has been a persistent problem in Njikoka local
government. Revenue generation entails generating and exploring all the
sources of revenue for the local councils. Njikoka government relies heavily
on external sources for funds: it is evident that Njikoka local government area 6
has failed to explore the various sources of internal revenue generation open
to the local government; hence the problem of internally generated revenue.
Some factors are accountable for the poor internal revenue generation in
Njikoka Local Government Area. It is in this light that we asked this broad
research question-what then are the causes of poor internally generated
revenues in Njikoka local government of Anambra state?
The study attempts to provide answers to the following questions.
1. What accounts for the inability on the part of revenue collectors to
collect internally generated revenue in Njikoka Local Government
Area
2. Does lack of financial autonomy constitute a problem to internal
revenue generation in Njikoka local government area.
1.3 Objectives of the Study
The broad objective of this study is to examine the problem of internal
revenue generation in Njikoka local government. The specific objectives of
the study are as follows:7
1. To determine what accounts for the inability of revenue collectors to
collect internally generated revenue in Njikoka local government.
2. To find out if lack of financial autonomy constitutes a problem to
internally generated revenue in Njikoka local government; and
3. To proffer solution to the problem of poor internal revenue generation
in Njikoka Local Government Area.
14 Literature Review
There are reasonable number of existing literature on local government
finance and internal revenue generation in Njikoka local government Some
scholars have made one or two contributions in this area
The aim of this literature review was to familiarize ourselves with what
other scholars have said about the subject matter, see how they approached
the issue and determine whether the scholars have answered the question(s)
we intend to answer satisfactorily The literature review was specifically
aimed at discovering the gap in the existing literatures It was to know what
other scholars have either said or not said8
For instance, L Rowland (1977:77), made some comments on the desirability
for local governments to have their own sources of revenue He state’s that
“an effective local government system cannot exist where the local authority
has no power to improve and collect its own taxes” Certainly, in many
developing countries such as Netherland, local authorities have fewer sources
for revenue generation”
Orewa (1986:180), in his book titled “Local Government Finance in
Nigeria”, described and discussed various sources of revenue open to local
governments and problems in the collection and management of their
finance Such problems are-shortage of trained manpower, ignorance of the
councilors over their duties and non-commitment to duty on the part of the
staff and councilors alike
Adediji (1979:87), blames poor internal revenue generation of local
government on the following reasons
a Lack of proper structure
b Low quality of staff and
c Lack of mission and comprehensive functional role9
According to him, these problems lead the local government into vicious
circle of poverty This is due to the fact that inadequate funding results in
employment of low skilled and poorly paid staff
Bello- Iman (1990:134), in the same vein states that “ the major
constraint to internal revenue generation in local government is the shortage
of well trained and qualified personnel which suppose to serve as tool for
collection of taxes and rates at the local level” According to him, even the
few available are not peoperly trained in efficient budgetary and financial
management systems Also most of the local governments are short-stuffed to
carryout their duties”
Nkala (1985:60), talking about the problem of personnel in internal
generation of local governments states that “at the inception of democratic
local government system in the former Eastern region of Nigeria in 1950,
early recruits into the local government service were mainly ‘sons of the
soil’, party stalwarts, relations of councilors” He blamed shortage of trainedstaff in local government on politicization of recruitment, selection and
placement
Mugrave, RA (1959:89), noted that “poor auditing has contributed
immensely to problem of internal revenue generation of local governments” 10
According to him, “local governments should have a means of ascertaining
whether it’s financial operation is properly conducted, this can only be done
through audit”
In a more recent study, Ebo (2000:123), did a thorough work on how
to enhance internal revenue of local government, using Nsukka as a test case
He corroborated the evidence of other scholars to the effect that there is a
great loss of council’s revenue due largely to the loopholes in the
management of revenue sources He noted that collection procedure of the
council could be streamlined in many areas especially where their facilities
were used Citing motor parks for instance, he observed “motor parks fees
paid by taxis can be good money earned for local government councils if
properly managed But as of now (2000) each of these taxis pays #10 a day to
the local government no matter how many loads they made In contrast to
this, each taxi pays touts up to #30 per load and there may be several loads
per day Thus, the local council receives #10 per taxi daily What a flagrant
case of robbing peter to pay paul”
As Ikejiani-Clark (1995:53) pointed out that,
the growing prominence of corruption and fraud in
local government as evidenced from massive data
from the various parts of the federation has 11
coincided with increased academic interest in
corruption and fraud in our public life
Still in the same view, Obi (1996) and Ikejiani-Clark (1995) produced
massive data on cases of corruption and fraud in Nigerian local governments;
for instance, Obi observed that
the poor state of accountability in the local
government studied was as a result of interwoven
tragedy emanating from the Nigeria factor, weak
accounting control mechanism lack of prosecution
of offenders, dishonesty, absence of adequately
maintained financial records, conflict in role
perception by the chairmen and many others He
concluded that “unaccountability was the major
cause of poor internal generated revenue and low
development in the local communities’ in Nigeria
(Obi 1976:179)
Further, Ezeani (2004:120), states
corruption remains a major problem which has
constrained local government especially in
developing countries from contributing
meaningfully to the upliftment of the standard of
living of the local people It is rife in the areas of
revenue generation and declaration by collectors to
embezzlement of local government funds by
officials of local government
To stress the point, Obinna had (1995:47) stated that
some unscrupulous revenue collectors and senior
financial officers of the local government defraud 12
the local government by printing fake receipts
which they use to collect unaccounted revenue
On the side of lack of adequate manpower for revenue generation by
Nigerian local government, Nwankwo (1995:154) observed that why local
governments have not paid proper attention to internal generation of revenue
was due to poor staffing, sharp and fraudulent practices of the revenue
collectors, lack of logistic support for revenue collectors and refusal of most
citizen to cooperate in paying the necessary fees due to the local government
Wraith (1972:68) stated that
lack of foresight and entrepreneurial skills on the
part of key local government function arises
especially the revenue officials have contributed
heavily to the failure of internal revenue
generation for the local governments
He maintained that local government functionaries who should look inwardly
to identify and exploit fully more viable sources of revenue in their areas of
jurisdiction unfortunately fail to do so mainly because they are not
enterprising
On the issue of the auditing system in Nigerian local government,
Musgrave (1959:39) noted that poor auditing system in Nigerian local
government has contributed immensely to problem of internal revenue 13
generation of local government To him, local government should have
means of ascertaining whether its financial operation, are properly conducted,
this can only be done through audit In this view, Oguonu (1995:143) pointed
out that:
the dearth of qualify staff to conduct audit has
resulted in using people who do not possess the
requite experience and knowledge to face the
challenges of the work
Supporting this view, Ezeani (2004:124) pointed out that “inefficient
supervisors do not effectively supervise the revenue staff and records”
Again, internal auditors lack independence required for effective
performance of their duties As Ezeani (quoting Oguonu 1993:860)
succinctly put it:
The administrative set up in such that the internal
auditor can hardly exercise his powers
independently because; he depends on his
superiors for recommendations, for promotions
and career advancement
Again, Oguonu (2003:135) pointed out that another fundamental
reason for poor internally generated revenue is that Nigerian local
governments were not created on the basis of their viability
She maintained
that they are mere political creations Further she stated that: “some of the 14
newly created local governments were as a result of political patronage to
ruling party loyalists”
Other reasons for poor revenue collection by Onyisi (1999), Adewale
(1998) and Ezeani (2004) are the fact that most of local governments cannot
enforce bye laws on revenue collection In some cases the law of revenue
collection is not updated They also maintained that there is also poor
communication network especially in the riverine areas
Finally, Omopariolar and Adewale (1998:247), stated that
high incidence of tax evasion also plays a major
role in poor internally generated revenue in the
local government system Most Nigerians are not
willing to pay taxes
Despite all these arguments presented by these scholars, the issue of
poor internally revenue generation in Nigerian local governments has not
been properly addressed The scholars have failed to touch on the kind of
fiscal relationship that exists between the local government and other levels
of government and how this intergovernmental financial relations either
enhances or undermines internal revenue generation in Nigerian local
governments For instance, the 1976 Local Government Reforms put into 15
consideration the relationship that exists between state and local government
Local Government Guideline states
the defects of previous local government system
are too well known to deserve further elaboration
here Local government has over the years suffered
from the continuous whittling down of their
powers The state governments have continued to
encroach upon what would normally have been the
exclusive preserve of local government Lack of
adequate funds and appropriate institutions have
continued to make local government ineffective
Cameron (2001:213) defined intergovernmental relations “as an array
of structures, processes, institutions and mechanisms for coping with the
inevitable overlap and interdependence that is a feature of modern life”
Odugbemi (1989:175) defines it “as a system of transactions (behaviour
patterns) among managers of hierarchically, structured levels of government
in a state” He goes further to argue that the objectives for intergovernmental
relations is the achievement of the division of work, authority, resources
sharing among levels of public and sometime extra government authorities in
state
Olaokun (1979:97) stated that:
there are variations in the capacity of the different
levels of government may not have enough
capacity to raise enough revenue when it is 16
realized that in a federation it is desirable for every
state or locality to attain minimum level of
services It becomes imperative that for these areas
that have low revenue-raising capacity to meet up
with the national minimum they have to impose
heavier taxes on inhabitants of such areas
These existing literature have failed to explain the impact of state –
local government intergovernmental relations on internally generated
revenue
15 Theoretical Framework
Theory of fiscal federalism is applied in this work as our theoretical
framework The “theory of fiscal federalism” as originally developed by
Musgrave (1959) and Oates (1972), concerns the division of public sector
functions and fiancés in a logical way among multiple layers of government
(King 1984) Fiscal federalism, as it is called, is used to refer to the fiscal
arrangement among the different tiers of government in a federal structure
(Ekpo, 2004)
Initially, stabilization and distribution were considered the cardinal
points in federal arrangement The focus in federalism then was always on
how to divide functions among the federating units in order to avoid
functional overlapping and conflicts Recently, attention in federalism has 17
shifted to revenue mobilization and allocation among different tiers of
government This is due to the recognition of the fact that adequate finance is
requisite condition for effective delivery of service by the federation units
According to Bello-Iman (1990:44), the most dominant area of
intergovernmental relations is finance This is because no level of
government can perform its functions without strong financial base In this
perspective, the main analytical task of fiscal federalism is to define the
appropriate functions and fiancés of different tiers of government as
efficiently as possible that is in such a way as maximize community welfare
The theory of fiscal federalism applies to local service units in metropolitical area as to states in a federation (Gramlich 1977, Rubinfeld 1987) In
principle, however, there are important analytical and policy differences, not
only between local metropolitan problems and federal state problems but
even between tight federal state problems but even between tight federations
such as Germany and “Loose” federation such as Canada –with the United
States somewhere in between These differences arise in part from the
differing nature and rigidity of the constraints imposed by political
institutions The question has attracted considerable attention in recent years
in part because of the emergence of nascent “federal institutions” especially 18
in third world countries For instance, in Nigeria, there are statutory
provisions for revenue sharing an powers to generate revenue through
specific sources The 1999 Constitution of Federal Republic of Nigeria,
established the type of fiscal relationships that would exist among the various
levels of government For example, section 149(2) of the 1979 Constitution
or section 162(3) of the 1999 Constitution stipulates that any amount
standing to the credit of the Federation Account shall be distributed among
the federation, state governments and the local government councils in each
state on such terms an in such manner as may be prescribed by the National
Assembly
Similarly, the 1999 Constitution provided for state-local financial
relationship under section 162 sub-sections 8 This section states that the
amount standing to the credit of the local government councils of a state on
such terms and in such manner as may be prescribed by the House of
Assembly of a state
Apart from the constitutional provisions of external revenue to local
government, the 1999 Constitution as contained in forth schedule and Model
Financial Memoranda for Local Government (1991) and section 45 of Decree 19
No 36 of 1998 provide for internal sources of revenue generation by Nigerian
local governments
Despite all these constitutional provisions, in the words of Owens and
Panella (1991:54), “Local governments almost invariably depend in part and
sometimes very heavily upon transfers from upper-level governments to
finance the services for which they are responsible” This is due to the fact
that in most countries whether formally federal or not, there is clearly vertical
competition between levels of government for revenue; perhaps because as
rule local government have access only to those revenue sources that higher
level of governments do not want for themselves
16 Hypotheses
To answer our research questions, hypotheses were formulated The
formulated hypotheses are:
1 Negligence on the part of revenue collectors is a major problem to
Internal Revenue generation in Njikoka Local Government Area
2 Lack of financial autonomy constrains generation of revenue via
internal sources in Njikoka Local Government Area 20
17 Method of Data Collection
Both direct and indirect methods were used in collecting data for this
research work For instance, indirect method of reviewing was used by going
through textbooks, journals, periodicals etc written by other scholars on the
same subject matter The direct observation was also used by going through
government documents or publications like financial reports and annual
estimates of Njikoka Local Government
Population of Study, Sample and Sampling Techniques
The population of this study comprises of the staff of Anambra State
Local Government Service Commission, members of Audit Alarm
Committee, Auditor General of Anambra State, staff of Njikoka Local
Government Council and some of Anambra State Government Officials
A stratified random sampling technique was used to select the
departments to be included in the study Five departments were selected from
Anambra State and Njikoka Local Government respectively; making it a total
of ten departments Ten respondents were chosen from each of the selected
departments; and that will give us a total of one hundred (100) respondents
The respondents were mainly finance staff with some staff in management
position that could influence the activities of finance staff For instance, ten 21
respondents were drawn from Account Departments, ten from Planning and
Statistics Units, ten from Audit Units, ten from Personnel Department, ten
from the Anambra State Local Government Service Commission, ten from
the Office of the Governor on Local Government Affairs and ten from the
Office of Auditor-General of Anambra State
The self-report techniques were used to obtain information from these
respondents Unstructured interview was conducted on fifteen (15) workers
in Anambra State and (15) in Njikoka Local Government Staff The
respondents interviewed were not randomly chosen, but selected through
judgmental sampling
Research Design
Ex Post facto (X O1 O2) was used in this research to obtain data we
used to test our hypotheses or answer our research questions According to
Asika (1991:24); “ex post facto research is a systematic empirical study in
which the research does not in any way control or manipulate independent
variables because the situation for study already exists or has already taken
place”
According to White (1990), “ex post facto is often called simple
experimental design It is developed to provide alternative means for 22
examining causality in situations which were not conducive to experimental
control and also to control as many threat to validity as possible”
In this research, we hypothesize the relationship between y, dependent
variable and x, independent variable We say that there exists a form of linear
relationship between x and y and y changes directly with any change in x
There is relationship between X1 Negligence on the part of revenue collectors
– Independent variable (x) and internal revenue generation in Njikoka Local
Government Area (y) X2 Lack of finance (Autonomy (x) and Internal
Revenue generation (y)
Since ex post facto research lacks control or manipulation in
hypothesis testing; it is faced with the problem of precision In words of
Kerlinger (1973) “in spite of its lack of precision ex post facto research still
finds a place in scientific business research This is because it is a realistic
approach to behaviourial science research Since experimentation often does
not take place in real life situations and may need one type of contrivance of
research situation or another”
Method of Data Analysis
In the area of method of data analysis, statistical tables or data
tabulation is applied Tabulation in the words of Asika (1991:114) “is the 23
process of creating data for further analysis by the use of tables Unanka
(2002:20) states that “statistical tables are commonly used in summarizing
socio-political data They are devices for organizing or presenting statistical
information in a concise and comprehensive manner
Quantitative descriptive analysis is used to summarize a mass of
information generated in the study so that appropriate analytical methods
could be used to further discover relationship among the variables
Chi-Square is used in testing of independence among the variables in
our hypotheses Chi-square is a measure of the discrepancy frequencies It
serves as a test of significance or independence
