INDIRECT TAX AS A SOURCE OF FUND TO LOCAL GOVERNMENT

BACKGROUND OF THE STUDY:

Nigeria has three- tiers of government systems,

These are;        (i)         The federal government

            (ii)        The state government and

          (iii)         The local government.

The essence of this division of government into federal, state and local levels is to enable the government exercise her administration easily and effectively. However the 1979 constitution spells out the functions of each level of government. Generally it can be said that the governments are responsible for the provision of the collective (social) goods and services on a non- commercial basis as well as the provision of other social and economic services.  In order to meet up with the foretasted goals and services, the government needs to collect revenues.

Local government, which this work emphasizes on, can be described as the government at the local level, exercised through representative council, established by law to exercise specific power within definite areas. The government of such body is selected or otherwise locally selected.

The administering of government at local level in Nigeria traced as far back as colonial period, when native authorities were established in their rudimentary forms, that is in their own ideas. They represented a system of indirect rule, which sought to establish a form administration through traditional authorities

Between 1950 and 1955, the first elected local government council based on the model was shadbushes in logos and in the former Eastern and western Region. Though, the traditional members constituted a maximum of 25 percent in most of the councils, the emergence of members elected on a political basis instigated the traditional rulers to gradually withdrawn from active participation in local administration in Nigeria.

Presently, local government administration is still in existence assigned with numerous. Responsibilities like, bawling of market square, provision of pipe-born water, motor parks, rehabilitation of local and rural roads, sanitary and health inspection, maternity home and dispensaries e t c.

Finally, local governments have two (2) main sources of revenue or fund. They are

(i)         External sources of fund.

(ii)        Internal sources of fund.

The External sources of fund include;

(a)                Statutory allocations from the federal and state government (i.e., 20% considered federal revenue and 10% of internally generated state revenue).

(b)               Special grants which aim at assisting local government finance their aforementioned projects. In addition, local government source fund internally through receipts on rent and rates on their properties, tenement tax, earning from commercial undertaking, interest payment and dividend, licenses, fees and fines e t c.

1.1       STATEMNT OF PROBLEM:

The problems that confront most local governments on revenue generation cannot be over-emphasized. Hence local government having numerous means of sourcing fund, are also, faced with a lot of problems and difficulties in generating its revenue. These problems affect mostly its internal sources of revenue.

Tax avoidance and delinquencies are among the problems confronting most local governments on revenue generation, as most people of the society device some means source maximum reduction in the amount to be paid as tax obligation on the date it is due, there by, escaping tax liabilities.

Inability of most people of the society to pay up amount due for rent and rates on local governments properties. This hinders local governments as regards revenue generation, as most people lack fiancé and others not willing to pay – up.

Inadequate operational vehicles and other facilities confront local governments as a problem in generating revenue. Revenue generation needs mobilization and most local government do not have enough, which would have enable them to move easily from one part of the area to another for the collection of various fees.

Another problem hindering local government revenue generation lies among the staff. Many staff lack job related in service training, and some have poor educational background, some are not dedicated, deligent and honest. Often they do collude with tax or ratepayers to defraud the government.

All these problems will not only affect the local governments but, every member of the society and the nation in general. This ids because, these problems will not enable most local governments to carry out or problem their statutory assigned functions effectively thereby, leading to and definitely, affects the economic growth and development of the nation (Nigeria).

1.2       OBJECTIVE OF THE STUDY:

From experience and the prevailing circumstances or situation of the economy, it can be clearly observed that no central government can carry-on or exercise her administration effectively without the assistance of the state, and mostly, the local governments as to reach easily to the welfare of the people in the rural areas, that is, people at local level.

            Hence, the objectives of this study are:

-           To critically examine and know why most people of the society do not comply in payment of tax, rent and rates and other fees or charges.

-           Also to examine how staff of local governments contribute to the problem of revenue generation, and as well, to know how inadequate operational vehicles/machines contribute to the problems of revenue generation in local government areas.

-           To know the effects or impacts of these problems, that is, how they will affect the cost and standard of living of the people, as well as, economic growth and development.

-           To make recommendations or prospects on these problems of revenue generation in local governments in order for them to perform their statutory assigned function effectively.

1.3       SIGNIFICANCE OF THE STUDY:

The inhabitants of the various local government areas of the nation (Nigeria) will have the course to enjoy the affirmative results to certain extent if all or part of these problems to revenue generation in local governments are properly tackled. Hence, such myriad of problems of revenue generation, which also, give rise to untold hardship will generally be under control or a thing of the past.

This will become a tool for most local government areas to a speedy set-up of some strategies which will enable them to generate their revenue easily, and as well as executing their projects effectively. This study will be of paramount significance to the society, mostly to those students in school of financial studies (Banking and finance) who are making or intending to carry out research in the problems that confront most local governments in Nigeria on revenue generation.

This will also give potential market men and women as well as other residence of various local government councils as regards payment of tax, rates, charges, etc.

Finally, it will enable the researcher to have an in-depth knowledge of the study. Therefore, the significance of this study is by no virtue, exhaustive.

1.5       DEFINITION OF TERMS:

(i)         TAXATION: This is one of the ways local government generate revenue. It is a compulsory levy imposed by the local government on most of the entire members of the society who are capable of paying tax or who are expected to pay tax.

(ii)        PERSONAL INCOME: This is a form of direct tax, which is levied on the wages, salaries and other earnings of individuals. In assessing   this kind of tax, certain allowances (wife, children, dependent relative allowance, etc) are deducted; the balance is then taxed to determine the amount to be paid as tax.

(iii)       LOANS: Loan can be described as a financial aid with interest payable. Sometimes local governments borrow money in form of loan from other bodies like: Banks, State Government, Federal (if possible) etc to enable them execute their projects when they are in short of fund. However, this loan is payable at a given interest rate over a specified period of time.

(iv)             RENT AND ROYALTY: these are payments made to local government properties or revenue, such as land, building, etc.

(v)        GRANTS: Grant are said to be financial aids without interest. This simply means that grants are form of gift granted to local governments by a body (federal, state or any other body) without paying back.