IMPACT AND CHALLENGES OF TAX REVENUE AS A SOURCE OF
DEVELOPMENT FOR LOCAL GOVERNMENT IN NIGERIA
(A CASE STUDY OF ALIMOSHO LOCAL GOVERNMENT)
The purpose of the study is to investigate the impact and challenges of tax as a source of developing local government in Nigeria.
Ibukun Alatise (2008) defined Taxation as a form of compulsory levy imposed by the state (government) on people, corporate bodies, goods and services in order to finance its expenditure and create condition for the economic well-being of the society.
Based on the importance and the increase need for finance in every level of government, federal, state, and local government, the researcher has carried out a comprehensive study of the types of revenue coming to local government for development especially tax revenue which something called levies. The importance of tax cannot be over emphasizing.
The project will review past literature, book, journals, and periodicals. Data will be collected for necessary analysis and appropriate conclusion will be drawn to establish their tax contribution to local government development.
1.1 BACKGROUND OF THE STUDY
Taxation plays a crucial role in promoting economic activity and growth.Through taxation, government ensures revenue are channeled towards important projects in the society, while giving succor to the weak.
Unfortunately, in today’s Nigeria, the economic development is nothing to write home about. The role of taxation in promoting economic activity and growth is not felt primarily because of its poor administration. A relationship exists between economic growth and taxation in lights of the accumulated economic evidences embedded in the three tiers of government in Nigeria.
Tax, either direct or indirect is believed to be an obligatory charge imposed by the public government on the income of an individual, company and organization and tax is agreeable the major source of government’s revenue. Revenue informs development when it is well managed and geared as the third-tier level of political government to generate revenue from various from various sectors of the local economy.
Taxation is therefore, one among other means of revenue generation of any government to meet the need of the citizens some of which have been pointed out above. Globally, government is saddled with the responsibility of providing some basic infrastructures for the citizens.
The tax system in Nigeria is made up of the tax policy, the tax laws and the tax administration. All of these are expected to work together in order to achieve the economic goal of the nation. According to the presidential committee on national tax policy (2008), the central objective of the Nigeria tax system is to contribute to the well being of all Nigerians directly through improved policy formulation and indirectly through appropriate utilization of tax revenue generated for the benefit of the people. In generating revenue to achieve this goal, the tax system is expected to minimize distortion in the economy. Other expectations of the Nigeria tax system accordance to the presidential committee on national tax policy (2008) include:
i Encourage economic growth and development.
ii Generate stable revenue or resources needed by government to accomplish loadable projects and or investment for the benefit of the people.
iii Provide economic stabilization.
iv To pursue fairness and distributive equity
v Correction of market failure and imperfection.
In an attempt to fulfill the above expectation, the national tax policy is expected to be in compliance with the principle of taxation, the lubricant to effective tax system. The Nigeria tax system has been flawed by what is termed multiplicity of tax and collecting entities at government (Ahunwan 2009). Having stated some of the functions of government to the citizens using taxations as a tool, the objective of taxation can therefore be summed up as in nightingale (2002) and Lyme and Oats (2002):
1.2 STATEMENT OFPROBLEM
It is with a displeased observation that the local government is living below the purpose for which it was created that I choose to undertake this research study in order to address the stake and as well enliven the hope and possibilities of her development through tax repositioning. Misplaced focus and mismanagement of funds and revenues are the major problems accessible with keen observation. The local government stagnant growth and development deserves an urgent strategic intercession in order for it to inform grassroots development.
Inadequacy of tax policy is another problem this research study seeks to address. Policy review is absent as old fashioned tax policy are still employed to increasing challenges of a grown economic environment the local government oversees. Most of the tax laws in Nigeria are outdated and do not reflect the realities on ground.
1.3 SIGNIFICANCE OF THE STUDY
Scholars have undertaken researches widely on every relative aspects of tax in Nigeria not disputing the fact that new areas springing up as the society advances economic wise. Yet there exist a thin negligence on the relationship between tax and grassroots development possible only by the development of local governments. It is in quirk that this research study is conceived to unravel what appropriate approach and benefits tax can affect the development of local government. This research work shall examine the tax administration and compliance in Nigeria by analyzing the tax gap in the system over the years thereby revealing the critical challenges that need be tackled.
1.4 OBJECTIVES OF THE STUDY
It is the aim of this research study to bring to light the positive impacts as well as challenges of tax revenue collection influencing the development progressive of local government in Nigeria using Alimosho Local Government of Lagos State as the physical are of study. The objectives therefore include the
i To investigate the impact of taxon the local government economy
ii To examine the Local Government tax system and administration
iii To divulge the challenges of taxation towards the development of local government.
iv To examine the relationship between economic growth and taxation.
1.5 SCOPE OF STUDY
The research study spans local government tax system, tax administration, tax generation or mobilization, constraints besetting tax payers, general principles of taxation, its purposes, uses, classification and effects. It also encompasses the various challenges and prospects of taxation at the local government. The administration structure and governance of local government is not left out touching some aspects of the establishment, policies and constitutional power provisions of local governments. A historical overview of local government in Nigeria, Lagos state and that of the case study(Alimosho local government)is also within the scope of this study.
1.6 DEFINITION OF TERMS
1 Local government: It is the third level of government, established with the sole aim of bringing government closer to its subjects at the local level.
2 Tax: It is an amount of money that a person or group of people must pay to the government according to the persons income property, goods and services that is used to pay for public services and perform other social responsibility.
3 Taxation: It is the system of leaving collecting of a public authority with the proper jurisdiction of compulsory contribution from person or cooperate body to defray cost incurred by the authority in the common interest of all.
4 Taxable income: The amount of income remaining after all permitted deductions and exemptions have been subtracted, thus the income that is subject to tax.
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