Taxation as a Major Source of Revenue in Nigeria

 Taxation as a Major Source of Revenue in Nigeria


Taxation as a Major Source of Revenue in Nigeria


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Chapter One of Taxation as a Major Source of Revenue in Nigeria


Background  to the Study

Taxation is seen as a burden which every citizen must bear to sustain his or her government because the government has certain functions to perform for the benefits of those it governs (Afuberoh and Okoye, 2014). A précised definition of taxation by Farayola (1987) is that taxation is one of the sources of income for government, such income as used to finance or run public utilities and perform other social responsibilities. Ochiogu (1994) defines tax as a levy imposed by the government against the income, profit or wealth of the individuals and corporate organizations.

According to Adams (2001) taxation is the most important source of revenue for modern governments, typically accounting for ninety percent or more of their income. Taxation is seen by Aguolu (2004), as a compulsory levy by the government through its agencies on the income, consumption and capital of its subjects. These levies are made on personal income, such as salaries, business profits, interests, dividends, discounts and royalties. It is also levied against company’s profits petroleum profits, capital gains and capital transfer. Whereas, Ojo (2008) stresses that, taxation is a concept and the science of imposing tax on citizens. According to him, tax is itself a compulsory levy which is required to be paid by every citizen. It is generally considered as a civic duty. The imposition of taxation is expected to yield income which should be utilized in the provision of amenities, both social and security and creates conditions for the economic well-being of the society. Okon (1997) states that income tax can be regarded as a tool of fiscal policy used by government all over the world to influence positively or negatively particular type of economic activities in order to achieve desired objectives. The primary economic goals of developing countries are to increase the rate of economic growth and hence per capita income, which leads to a higher standard of living. Progressive tax rate can be employed to achieve equitable distribution of resources. Government can also increase or decrease the rates of tax, increase or decrease the rate of capital allowances (given in lieu of depreciation) to encourage or discourage certain industries (e.g. in the area of agriculture, manufacturing or construction) or may give tax holidays to pioneer companies. Income tax therefore can be used as an agent of social change if employed as a creative force in economic planning and development.

Revenue generation in Nigeria local governments 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 chieftain and later on a form of organized government (Ojo, 2003). No system or rules can be effective whether foreign or nature unless it enjoys some measures of financial independence.

Local governments in Nigeria has developed over a number of years. 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, community taxes were levied on communities (Rabiu, 2004) recently the revenue that accrues to local government is derived from two broad sources, viz: the external sources and the internal sources.

External sources of local government finance includes: Statutory allocation from the Federal Account in accordance with section 160 (2) of the constitution of the Federal Republic of Nigeria (Promulgation) Decree 1989. Statutory allocation from each state government to the local governments in its areas of jurisdiction, Federal Grants-in-aid, State-Grants-in-aid, Borrowing from state government and other financial institutions, Local Rates on markets and shops, while internally generated source of finance includes; local rates, markets taxes and levies excluding any market where state finance is involved, Bicycle, truck canoe, wheelbarrow and cart fees, other than a mechanical propelled truck, Permits and fines charged by Customary Courts Local Government Business Investment, Tenement Rate Fees from schools established by the local governments Shops and kiosks rate, on and off Liquor Licence fees, Slaughter slab fees, Marriage, birth and death registration fees.

Naming of street registration fee, excluding any street in the state capital, Right of occupancy fees on lands in the rural areas, excluding those collectable by the federal and state governments excluding the state capital, Cattle tax payable by cattle farmers only, Merriment and road closure levy, Religious places establishment permit fees.

Signboard and advertisement permit fees, Radio and Television licence fees (other than radio and television transmitter), Vehicle radio licence fees (to be imposed by the local government of the state in which the car is registered), Wrong parking charges.

Public convenience, sewage and refuse disposal fees, Customary burial ground permits fees, Fees collected from amusement centers established and operated by the local authority and that of Tourist centers and Tourist attractions, Rents, Fees on Private Institution, Motor park levies, Domestic and licence fees etc. Inspite of the above sources of revenues, Local government is faced with varieties of difficulties to source adequate revenue from federal government, state government and the internally generated revenue, such problems are cogwheel to the smooth running of local government administration.

They are the dishonesty on the part of officers collecting the revenues, such as cases of printing receipts by the officers had been the major problem in releasing the expected revenues.

The machinery put in place for collection of revenue is inadequate hence, most of the government money is not collected and this is in case of the internally generated funds. Meanwhile, as government is the means by which the common problems and needs of a community constituting a country are economically catered for, so as local community revolves jointly those common problems and needs, which could have been difficulty to solve individually. The very objective of having local representation is in order that those who have an interest in body of their country men may manage that joint interest by themselves. This is why every state find it desirable to create local government councils to provide and deliver local public goods and services hasten development (Olaoye, 2006) and bring government closer to the people.

Statement of Problem

Afuberoh and Okoye(2014) observed that over the years, revenue derived from taxes has been very low and no physical development actually took place, hence the impact on the poor is not being felt. Inadequate tax personnel, fraudulent activities of tax collectors and lack of understanding of the importance to pay tax by tax payers are some of the problems of this study. The issues mentioned above will therefore constitute the problem to be addressed by this research study.

Aim and Objectives of the Study

The broad objective of this study is to critically assess the Taxation as a major source of revenue genera in Nigeria, using Lagos Internal Revenue Scheme as a study, specifically the study will also to:

i)                   determine the extent taxation has contributed to revenue generation in Nigeria

ii)                examine the extent taxation has contributed to the steady growth in Gross Domestic Product in Nigeria

iii)              determine how Nigeria can revolutionalise her tax system in order to boost revenue generation through this source

iv)              determine sources of tax in Nigeria

Relevant Research Questions

The principal question of this research is: Is tax the major source of revenue generation? This research will also try to provide answers to the following sub-questions in the course of this study:

i)       What extent has taxation contributed to revenue generation in Nigeria?

ii)     What extent has taxation contributed to the steady growth in Gross Domestic Product in Nigeria?

iii)  In what ways can Nigeria revolutionalised her tax system in order to boost revenue generation through this source?

iv)  What are the sources of tax in Nigeria?

Relevant Research Hypotheses:

This study will test the following Hypotheses in order to do justice to this research:

H01: Taxation has not contributed significantly on revenue generation in Nigeria.

H02: Taxation has not contributed significantly to the steady growth in Gross Domestic Product in Nigeria.

Scope of the Study

The Present study will focus on fathoming the social as well as the economic effect of the Local Government with respect to Ajeromi-Ifelodun, Lagos state.

Significance of the study

This research study will be significant in the following areas:

    It will create a better understanding of the roles and functions of Local Government Administration

    It will elucidate on the essence of establishing Local Government Administration

    It will also help the citizens to understand how the establishment of LGAs affect them socially and economically.


Afuberoh, D& Okoye E., (2014)“The Impact of Taxation on Revenue Generation

in Nigeria: A Study of Federal Capital Territory and Selected States”,International Journal of Public Administration and Management Research (IJPAMR), Vol. 2, No 2,2(2):22-47

Aguolu,O. (2004) Taxation and Tax Management in Nigeria, 3rd Edition, Enugu;

Meridan Associates.

Edogbanya, Adejoh & Ja’afaru G. S. (2013) Revenue Generation: It’s Impact on

Government Developmental Effort (A Study of Selected Local Council in Kogi East SenatorialDistrict). Global Journal of Management and Business Research Administration and Management,Volume 13 Issue 4 Version 1.0

Farayola, G.O. (1987) Guide to Nigerian Taxation, Ikeja, All Group Nigeria

Limited Publishers.

Ochiogu. A.C.(1994) Nigeria Taxation For Students, Enugu; A.C Ochiogu


Olotu, G.E. (2012) Welcome Address speech by the chairman, chartered institute

of taxation ofNigeria, 14th Annual Tax Conference, 10th May.




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