CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

In recent decades, internally generated revenue has remained the main focus of all States and

Local Government Areas in Nigeria. Indeed, this is informed by the important role it played in

the development of the society. No system or rule can be effectively functional whether foreign

or domestic unless it enjoys an appreciable level of financial buoyancy on a sustainable basis.

Due to the issue ofinadequate of finance that has been the major problem which both State and

Local Governments in Nigeria have been grappling with in recent times, it is a matter of

necessity that other means of generating income is exploited. However, many of them have made

attempts to exploit economic potentials of their areas which are in abundance, to finance their

activities and enhance their development through other means to generate more revenue. It is

curious to note that such efforts are yet to yield desired results as the efforts are offset by

problems that impede effective and efficient revenue generation.

Every government needs funds to finance its activities. But the sources of such revenues can

hardly be exhaustive. This is so because an efficient Internal Revenue Generation plays a crucial

role in the developmental drive of governments at any level. It is more pronounced in developing

or transitional economies. Over dependent on the crude oil as a sole means of generating funds

has subjected all tiers of governments in Nigeria to serious financial stress as statutory

allocations have been fluctuating at abysmal levels. (Adenuga&Ogechi 2013).

The need for state governments to revisit the optimality and adequacy of their revenue generation

drive from internal sources within the state has therefore become a matter of extreme urgency

1

and importance. For example, Taxation which is a necessary ingredient for civilization, in any

given society it helps in redistribution of wealth. ―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 chieftain and

later to organized governments‖. (Ojo, 2003).

For any State to achieve meaningful economic development, it requires effective and efficient

revenue management, budgetary control and other components of public sector. Revenue

generation and management in most emerging economies are for social, economic development

and provision of infrastructure. These are made possible through implementation of all possible

means of revenue generation within the State, since revenue is considered as the oil in the wheel

of progress of any economic setting such as States and LGA in Nigeria.

However, state governments generate their revenues from numbers of sources which include

statutory allocations, corporate donations, foreign aids, and of course internally generated

revenue (IGR). IGR is one of the sources that have not being fully explored let alone exploited in

Nigeria.

This study focuses on the extent to which IGR contributes to the total income of States and LGA

using annual time series for the period 1988 to 2017, using Kwara State as a case study.

According to the Kwara State‘s annual financial report (2016), the sources of revenue available

to Kwara State include local licenses, fees, fines, earnings from commercial undertakings,

market rates, investment income, aid and grants, rent on government property, retained earnings

of parastatals, interest payment and dividend, loans, taxes. Other sources include statutory

allocations from federation account, value added tax (VAT), drawings from excess crude

account.

2