CHAPTER ONE

 INTRODUCTION

1.1      Background of the study

Internally Generated Revenue (IGR) is revenues generated internally apart from subventions, allocation, and grants from Governments. Every organization has various ways of enhancing her internal sources of revenue. For example, in the universities, student registration fees, rent of hall, rent of equipments, donations, dividends, interest, payment for transcript, payment for academic gown among others constitute their internal revenue bases. At the Local government level they equally have such internal sources. For instance, according to Okolie & Eze (2004:168), Local government internal sources of revenue refer to the avenues by which the local governments generate money from within its local areas. Internal revenue generations are the exclusive sources of revenue accrued to the local government system in Nigeria. They are that revenue which the local government alone is in charge. They are the sources of revenue which has been sustaining local government before the 1976 local government reform. They are the sources of revenue in which local government fall back on if the external ones fail. In fact, they are the traditional sources of revenue due for local government system in Nigeria. Internally Generated Revenue in normal day to day parlance refers to those revenue sources that are generated solely by the state and local governments. Adesoji and Chike (2013:241) defined it as “those revenues that are derived within the state from various sources such as taxes (pay as you earn, direct assessment, capital gain taxes, etc), and motor vehicle license, among others”. State government as the second tier of government in Nigeria derives its revenue from various sources which are by no means uniform among the states. Hence, states derive their revenue depending on the sources available to them (Okoh, 2004). Revenue generation in Nigeria Local Government is principally derived from Tax. Meanwhile 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 chieftains and later in a form of organized government, (Ojo, 2003). Historically, the development of direct taxation in local government in Nigeria can be traced to the period before the British pre-colonial period. Under this period, the community taxes were levied on communities, (Rabiu, 2004). Recently, the revenue that accrues to local governments is derived from two broad sources – the External and Internal sources. External sources include Statutory allocation from federation account in accordance with the constitution of the Federal Republic of Nigeria. It also includes grants from state and federal governments and other financial institutions. While Internal Sources include rates from local shops and markets, fines, bicycle licence, canoe and wheelbarrow fees, motor garage fees, marriage registration, taxes, etc. Internally generated revenue (IGR) is the revenue that the local government generates within the area of its jurisdiction. The capacity of local government to generate revenue internally is one very crucial consideration for the creation of a local council. According to Magaji (1994), the above stated are sources through which local governments generate their revenues through their own efforts. The modern States are confronted with more political, economic and social problems than ever before. First is the issue of demographic explosion, particularly in the developing countries. For instance, the population of Nigeria, which stood at about 56 million in 1963 rose to about 80 million in 1991 and the current estimation has projected the population in the country to be about 160 million people (Ebert, 1997). According to Adedokun (2011) stressed that Local government growth has been found not to be too effective in Nigeria and ineffectiveness has been traced to many factors, which include low funding from the central government. He further said that these problems led the local governments into a vicious circle of poverty, because inadequate functions and powers lead to inadequate funding, which results in the employment of low skilled and poorly paid staff.

1.2      STATEMENT OF THE PROBLEM

Due to maladministration and employment of low skilled staff in the local government, internal revenue generation has suffered a serious set-back. Revenue in the local governments is seriously under-generated. This is as a result of the inability of the local government to have knowledge or understanding of the behavior and characteristics of internally generated revenue through adequate modeling. The researchers therefore seek to proffer solution to revenue generation through modeling of the revenue series of Ohafia Local Government Area so as to be able to forecast and plan for the future, thereby improving the internally generated revenue of the local government.

1.3      OBJECTIVE OF THE STUDY

The main objective of this study is to investigate the sources and strategies for improvement of local government revenue in Ohafia local government area. But for the successful completion of the study, the researcher intends to achieve the following sub-objective

i)             To ascertain the sources of internally generated revenue available to local government in Nigeria

ii)           To ascertain the strategies adopted by local governments in revenue generation

iii)          To ascertain the impact of IGR in provision of social amenities

iv)         To proffer suggested solutions to the identified problems

1.4      RESEARCH HYPOTHESES

To aid the completion of the study, the following research hypotheses were formulated by the researcher:

H0: there are limited source of revenue available to local government apart from federal allocation

H1: there are other source of revenue available to local government apart from federal allocation.

H02: there are no effective strategies adopted by local government authority in revenue generation

H2: there are effective strategies adopted by local government authority in revenue generation.

1.5      SIGNIFICANCE OF THE STUDY

It is believed at the completion of the study, the findings will be of great importance to the administrators of the local government councils as the study seek to explore other avenue of revenue generation available to the local government councils. The study will also be useful to the finance unit in adopting appropriate strategies needed for revenue for revenue generation in the local government councils, the study will be of importance to lecturers, students, teachers and academia’s as the findings will add to the pool of knowledge, finally, the study will add to the already existing pool of literature on the subject matter.

1.6 SCOPE AND LIMITATION OF THE STUDY

The scope of this studies covers sources and strategies for improvement of local government revenue in Ohafia local government area of Abia state, but in the cause of the study, there were some factors which limited the scope of the study;

(a)Availability of research material: The research material available to the researcher is insufficient, thereby limiting the study.      

(b)Time: The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.      

(c)Finance: The finance available for the research work does not allow for wider coverage as resources are very limited as the researcher has other academic bills to cover.

1.7 DEFINITION OF TERMS

Revenue

In accounting, revenue is the income that a business has from its normal business activities, usually from the sale of goods and services to customers. Revenue is also referred to as sales or turnover. Some companies receive revenue from interest, royalties, or other fees.

Strategies

Strategy "art of troop leader; office of general, command, generalship"is a high level plan to achieve one or more goals under conditions of uncertainty. In the sense of the "art of the general", which included several subsets of skills including "tactics", siegecraft, logistics etc., the term came into use in the 6th century C.E. in East Roman terminology, and was translated into Western vernacular languages only in the 18th century

Improvement

Improvement is the process of a thing moving from one state to a state considered to be better, usually through some action intended to bring about that better state. The concept of improvement is important to governments and businesses, as well as to individuals.

1.8 ORGANIZATION OF THE STUDY

This research work is organized in five chapters, for easy understanding, as follows. Chapter one is concern with the introduction, which consist of the (background of the study), statement of the problem, objectives of the study, research questions, research hypotheses, significance of the study, scope of the study etc. Chapter two being the review of the related literature presents the theoretical framework, conceptual framework and other areas concerning the subject matter.     Chapter three is a research methodology covers deals on the research design and methods adopted in the study. Chapter four concentrate on the data collection and analysis and presentation of finding.  Chapter five gives summary, conclusion, and recommendations made of the study.

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