Local Government Tax Mobilization and Utilization in Nigeria: Problems and Prospects By

Adenike .A. ADEDOKUN Senior Lecturer Dept. of Public Admin. & Local Govt. Studies The Polytechnic, Ibadan. NIGERIA.

Contents
• Introduction • Theoretical Framework

• • • •

Tax Mobilization Local Government Finance and Revenue Utilization Problems and Prospects Conclusion

Historical Background
• • • • • • • • • • Based on Indirect Rule *Local government Ordinance of 1916 *Centralised budget system introduced in 1926 *First Revenue Commission of 1946 *Macpherson Constitution of 1948 which encouraged taxes and rates

Tax Mobilisation
Dependency of most LGs on Statutory Allocation Mobilization shows high decentralization Tax Mobilization seen as bloc sharing LG’ IGR consists of taxes,rates,fines etc (limited.see s Table 1)

Mobilizing Tax for effectiveness
• • • • • • Employment of efficient and educated Tax Collectors Training and re-training of LGs staff Reduce Tax avoidance and evasion Computerized system of Tax Collection Expansion of various taxes in LGs Tax Registration via electronics etc.

Revenue Utilization
• Essential services to the grassroots. • Community development:development projects

Problems
• Lack of well trained staff • LGs Dependency on Statutory Allocation • Autonomy vs Control

• Avoidance of Tax by Private sectors and rich bussinessmen • % remittance of Statutory Allocation from other tiers of government • Outdated mode of tax collection.

Prospects
• • Increase revenue base of LGs focusing on Tax Individual LGs should be encouraged to be independent. • Fiscal autonomy of LGs • Decentralization to encourage stronger LGs. LOCAL GOVERNMENT TAX MOBILIZATION AND UTILIZATION IN NIGERIA: PROBLEMS AND PROSPECTS ABSTRACT The federal structure in Nigeria constrains local governments’ ability to mobilize and use revenue to meet their obligation in a sustainable way. Local government system as the third-tier of government deserves adequate finances to enable it cope with numerous developmental activities within its jurisdiction. This paper is divided into five segments. Part one is the introduction of the theme, while part two deals with theoretical issues. Part three concentrates on the local government finances and revenue utilization. In order to finance some viable projects, local government must be given adequate tax power and also share major tax bases with other tiers of governments. Part four highlights the problems and prospects of local governments, Revenue, Mobilization, Utilization and Corruption. INTRODUCTION/HISTORICAL BACKGROUND One of the recurrent problems of the three-tier system in Nigeria 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, 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, they are in vantage position to articulate the needs of the majority of Nigerians and formulate strategies for their realization. Local administration in Nigeria 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’ old institutions s the best suited form of rule based on the people’ habits of thought, prestige and s 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 (see, Ekpo 1994). 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 (1970) 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 n 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 form the federation account with the intention of giving local government fixed proportions of both the federation account and each states’ 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’ proportion was reduced to 10 percent of the internally-generated revenue, local s 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’ allocation is 35 per cent based on equity of states (50 per cent), s population (35 percent) and derivation (2 percent). The 1976 local government...

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