Taxation: Tax and Local Government

Local government is faced with verities of difficulties to sources adequate revenue from federal, state government and internally generated revenue, such problems are cog wheel to the smooth running of local government administration. Revenue generation in Nigeria local government is principally derived from tax. Tax is a compulsory levy imposed by government individual and companies for the various legitimate function of the state Colaoye, 2008). Tax can also be defined as a compulsory levy by government on goods, service, income and wealth primary to obtain revenue.

In other words, it is levy or dues on the income of person and companies. It provides definite source of revenue of person for government expenditure. It is a way by which government obtain extra money. History of tax in Nigeria. The history of taxation can be date back to the age of men. According to Osisioma (1999) taxation was first introduced in great Britain in 1799 but with the intention that it would be a temporary levy to finance the Napoleonie wars. It was re-introduced annually till it was resumed 1842 and till date.

Osisioma (1990) states that prior to the period of European colonization, there was other forms of taxation in Nigeria dating back to days of our great ground father, where by communities taxed themselves through communical labour to prosecute community aids of aggression or attack or some kind of evialtion outside the community. Investigations carried out revealed that the inter-tribal was which existed in the olden days were attributed to search by stronger towns to get more town under their control. These weaker towns conquered become the subject of the stronger one, paying tax to them, while security will be provided in turn.

During this era, Nigeria cheerfully paid their taxes in kind by rendering free service such as clearing the bush, digging toilet, well etc. for the benefit of the communities as a whole failure to render such service usually results in seizure of property which might be re-aimed on payment of money of or what represented money. This is still practice in various parts of village and towns of this country today. After independence, state government were to find out other sources of revenue generation. 2. 1 NEED FOR REVENUE COLLECTION BY THE LOCAL GOVERNMENT.

The management of finance constitutes the most crucial and central component in the management process of the local government. This is largely so because finance determines quite numbers of things done or services rendered by the local government. Finance is in all reunification, the live-wire of government. It serves as the lubrication element that greases and makes every organization’s administrative machine move. It therefore follows that for the local government to discharge its statutory function effectively, it should not only be adequately funded but such find should be efficiently applied.

In other words the local government to serve as expected as a powerful instrument for rapid and sustained rural transformation it should posses a solid financial base. This forms the basis of the need for the collection of revenue by the local government. Most local government in Nigeria are very large both in terms of territorial and popular sizes, in such a circumstance, a greater need far revenue arises to enable such a local government cope with the developmental problems of such a large area and at the same time be able to meet satisfactorily the diverse needs of the large populations.

In the same way where the local government is allocated diverse functions, as it now has in Nigeria, some of which are large in scope like education, healthy, water supply and rural electrification, the revenue sources to be provided should correspondingly be large in scope. Viable and rich in content to match the diverse function. Related to the above is that a wide variable and magnitude of function requires large body of highly skilled, professionally trained and technically competent staff that must also be regularly motivated.

The employment of such staff would necessitate the purchase of a lot of costly equipment and material for use in the discharge of their duties. A Adedeji (1979) capped it all when he declared that the success or failure and the effectiveness and ineffectiveness of local government depend on the financial resources available to the individual local government and the way these resource are utilized. From the Foregoing, the need for the collection of revenue by the local government need not be over emphasized. 2. 2 SOURCE OF REVENUE GENERATION IN LOCAL GOVERNMENT

Local governments derive their revenue or finance through several ways. Even, in the attempt to marshal out the functions of the local government council, the fourth schedule of the constitution of the federal republic of Nigeria 1999 implicitly includes some of these sources of revenue to the local government. However, Ogunna (1996) posited that generally the local government has eight main sources of revenue which includes rates, grants, statutory allocation, fees and charges, fines earnings and profits, loans and miscellaneous sources.

The national policy of the government on the role of local government and particularly its adoption of the policy of using the local government as a powerful instrument for rapid integrated community development, including the local government third tier status must have occasioned the broadened revenue-base allowed the local government by the constitution. Statutory Allocation As the third tier of government, the local government receives statutory allocation from the federation account just like the state and the federal government.

This share of revenue is as fixed by law. Part of it also comes from the state government total internally generated revenue based on percentage formula. Because it is fixed by law, it is not voluntary but mandatory and dos not depend on the whims and caprices of the state and federal government. Also as revenue fixed by law, it can not be changed except through a legitimate process of change the law that provides it.

Statutory allocation is definite and certain. Rate As one of its independent source of revenue, people residing within a local government area pay some money to it informorates. Rate is, thus, a local tax of the local government, which is of three property tax, special tax and capitation rate other wise known as poll tax. Property rate is a fixed percentage amount of the current value of a private property levied. On the owner of such property.

The assessment of such a property is usually done by professionally of revenue to urban local government with high density of people and buildings. Capitation rate or poll tax which is some time called general rat is also a fixed amount of money levied on all ratable adult living in the local government. It is not only tixed but equal far every prayer and like the property rate it is paid annually. As a flat rate. It is generally low so that low income people can conveniently pay.

Special rate, as the name implies, it is a fixed amount meant to be paid by all ratable adults residing in the local government area. Special rate is usually levied for specific and priority project like education water supply and rural electrification which the local government has in adequate funds to provide. The problems associated with the above type of rates are rate evasion, rate avoidance, inaccurate assessment, double taxation, poor collection and low revenue returns. Fines

These are penalties imposed by the customary courts on individual’s for the contravention of the bye-laws of the local government such bye- law are put in place by the local government to regulate and control services allocated to them within their areas of jurisdiction. Note must however be taken that revenue accrueing to the local government through this source is relatively very in significant. Earning And Profits: These are profits, interests and premium accruable to the local government form its investment of funds in private or public economic vestures or business.

In other words, they are money realized by the local government form commercial ventures and industrial establishments include mass transit services soap industries, bakery, agricultural farms, shares owned in companies etc if such business is effectively and efficiently managed with minimum local government interference and political influence, huge revenue could be realized and in a continues basis. Fees And Charges Revenue is generated through payment for the services which the local government provides. Such fees are, in some cases, designed to regulate, and in other cases, to maintain the services.

Fees and charge are imposed and revenue realized from the issuance various types of licenses like bicycles, wheel barrow canoe and cart licenses. Others are charges on bakeries, sale of liquor, restaurants and public eating house, use of loud speakers in public places, errection of sign boards, registration of births and marriage, motor parks and markets, personal identification, public urinary and toilets etc. The imposition of fees and charges on these services by the local government always requires enabling bye-laws far them to be lawful.

Grants The federal and state government give grants often called grant-in-aid, to the local government to enable it discharge its function effectively particularly in the areas of the provision and maintenance of certain basic amenities for the people such basic amenities like water and electric supply, building of educational and health facilities and maintenance of roads attract grants. Four types of grants can be identified and they include general or block grant, specific grant, equalization grant and matching grant.

The general or block grant, which is usually very flexible in use, is given to the local government to augment its internally generated or independent revenue so as to be provided the need and services required by the people this type of grant is never tied with any particular project or services but can be utilized for any aspect of local government services whether capital or recurrent. As the name implies, specific grant where is fixed amount of money given by the state or federal government to the local government is usually meant for some specific purpose.

Therefore it becomes mandatory for the local government to apply the grants are generally given for capital projects like the building of roads and bridges, the provision of water and electricity, and the establishment of healthy, educational and agricultural facilities such grants are mainly given to assist in directing and stimulating community development in areas of national priority. Equalization grant on its part is given mainly to poor and backwards local government whose ratable value per head weighted population is below national average.

Such local government are assisted through this grant to not only keep up average standard of service but to catch up developmentally with relatively advanced local government areas. Local governments are expected and or indeed meant to embark on certain development projects that are listed as priorities of government. Consequently any local government that embarks on such priority project is given a matching grant which is also known as percentage of the total actual cost of the projects.

As in the case of specific grants, matching grant, which is designed to stimulate and encourage development, is generally granted in the areas of agriculture, health services, water supply, education and roads. Loans Local governments are empowered to obtain loans from the federal state or other local government. They are also allowed to raise loans from financial institution like the banks and from individuals. They raise far incurring capital development projects that are within their statutory functions.

Educational, agricultural and industrial development projects, drainage scheme, health and market development are good example of development projects for when loans can be raised. The fact is that no local government can make any reasonable giant stride in rapid community development without borrowing it is however important to note loans are necessity provided that they are prudently applied to the projects for which they are obtained on capital projects which are expected to be of immense benefit is the people including the coming generation who incidentally are reasonable expected to pay for such loans in future out of the and other forms of taxes they will pay.

Ogunna (1996) however noted that as a check against irresponsibly. The local government exercise of its borrowing powers is subject to the approval of the state government. Miscellaneous Revenue can be generated from the payment of levies like development and education from levies money can also be realized from rents paid for using any land or building belonging to a local government. G. F. T and donations from individuals, philanthropist and corporate bodies also from source of revenue to the local government.

TAX AS A MAJOR SOURCE OF REVENUE GENERATION Tax can be defined as a compulsory levy by government on good services, income and wealth. Tax is a compulsory levy imposed on an economic unit (individuals, groups, firms, institution by public authority, the government without any corresponding entitlement to receive definite and direct from the government. (udeh, Okey S. 2008) Purpose of tax The generation objectives of taxation include the following: To raise revenue for the government To regulate the economy.

To control income and employment. The specific objectives of taxation can be discussed in line with the following sub-heading: To raise revenue: the principal objective of taxation is to raise revenue for the government, which is needed for the provision of essential service and excecat of other activities or programmers of the government. To regulate the production of certain commodities. Service the government imposes tax in order to control the product of certain commodities which car considered harmful to human health. iii.

To control the consumption of certain commodities serves: taxes may be imposed in order to regulate the consumption of good Iseroices, considered either harmful or two luxurious. Such increase the price of the communities, hence a reduction in their demands and subsequent consumption. To control monopoly powers: certain taxes are levied in order to curb monopoly powers. Such taxes include excess profit tax etc. To reduce income: taxation can be applied as a means of redistribution income a progressive tax system takes away more money from rich and the proceeds are use marginal centiliter are higher for the poor than the rich.

To prevent dumping: very high duties can also be used to prevent dumping of relatively cheap products in the developing economics by the more technologically advance countries. To main balance of payment equilibrium balance of payment deficit can be corrected by imposing taxes when discourage import are at sometime introduced. Types of tax Direct Tax Indirect Tax Direct tax: is that which is levied on and really paid by the personal establishment (firms) on whom which it is legally imposed.

It can also be said to be that tax which demanded from the very person or company that it is tended should pay it the burder or incidence of direct tax is whally borne by the payer. (Udeh, okey S. 2008) TYPES OF DIRECT TAXES Capital gain tax Company income tax Capital transfer tax Petroleum profit tax Indirect Taxes: An indirect tax is imposed on item or product, usually at the point of production inception and which often times, is shifted from the originator of the item or product to another or others who ultimately consume the product.

Thus indirect tax is levied on the production (sale) or purchasing of a product (good or services) other than personal services. It therefore follows that an indirect tax can be partly or wholly paid by another, other than the person on whom it was originally levied (udeh Okey’s 2008) types of indirect tax includes: excise duties export duties import duties sales tax Value Added Tax (Vat) 2. 4 STRATAGES FOR REVENUE GENERATION AND TAX COLLECTION IN LOCAL GOVERNMENT. The major purpose of creating local government is to bring development to the grass roots.

In order to perform this adequately, there is need for local council to have strong economic base. In this connection, it is suggested that statutory allocation to local council be reviewed upward. This will make them financially self reliant. Omebi (2003) holds that it becomes imperative for a local government to set strategically for revenue collection, a carefully and thoroughly which a local government can collect her revenue by her efforts. The total revenue from these sources makes up the internally generated revenue.

Chime (2003) enumerated such local source of revenue among others as tenement rates, market and motor park, fees, sign board and advertisement permits, shops, kiosk, rates etc, also the local government bye-law (2000) specified approval fees payable as rate in the locality on such revenue in items as community and sanitation rates, market rolls and market stall tees, the bye-law also stated the modalities area as specified and the mode of remitting what specified and the mode of remitting what is collected to the treasury articles 4 (d) of the revenue collector should report to the council the names of those persons who have failed to pay, the amount in respect of rates due from them. 2.

4 Strategies for revenue generation analyze tax collection in government is to bring development to the grass roots in order to perform this adequately, there is need for local councils to have strong economic base. In this connection, it is suggested that statutory allocation to local council be reviewed upward. This will make them financially self reliant. Omebi (2003) holds that it becomes imperative for local government to set strategically for revenue collection carefully and thoroughly which a local government can collect her revenue by her efforts.

The total revenue from these sources makes up the internally generated revenue. Chime (2003) enumerated such local source of revenue and motor park, fees, sign boards and advertisement permits, shops, kiosk rats etc, also the locally government bye-law (2000) specified approval fees payable as rate in the locality on such revenue in items as community and sanitation rates, development rate, market tolls and market stall fees, the bye law also stated the mode of remitting what is collected to the treasury Articles 4 (d) of the revenue collector should report to the council the names of those person who have failed to pay, the amount in respect of rates due from them.

Other strategies to be adopted by the local government for tax collection and revenue generation included the following: Tthe administration of tax collection and revenue generation should be strengthened to ensure more efficient tax collection and revenue generation through the training of staffs, tax collection through the training of staffs, tax collector to be equipped out their functions creating effective in carrying out their functions creating of awareness, campaign within the local government and computerization of tax collection system.

Government should continue to ensure reduction in tarrif policy to encourage local industries. Specifically aggressive action should be taken to block revenue leakage on high duty goats and revenue leakage on high duty goods and bulk items. VAT has become a veritable source of revenue earning for the strengthened and expanded to broaden the tax base and to bring vat administration closer to the taxpayers, new local vat officers should be established all over the country.

Government should also ensure fair tax administration based on the principle of derivation of tax proceeds; it is recommended that the tax law should be exacted. For proper and effective collection of revenue due to local government, Omebi (2003) suggested that all source of revenue should be coded. 2. 5PROBLEMS ASSOCIATED WITH TAX COLLECTION AND REVENUE GENERATION IN ENUGU SOUTH LOCAL GOVERNMENT. The most difficult and intracetable problem which many local government in Enugu State counter in the present day Nigeria is the issue of poor revenue generation in and tax collection. This has been the major constraint to effective and efficient performance of local government in Enugu State over the years. (Ugwu, S. C 2000).

Despite the emergence of local government as the third tiers of government in 1976 and the sub sequent constitution of 1989, 1990, 1990, 1991, and 1992 all intended to operationalize the third tier status of local government, local government have continued to be bridged down by numerous external and internal problem of revenue generation and tax collection. these are classified into two namely: internal and external. Internal Problems The board of internal revenue, Enugu state is the main tax administration at Enugu is the main tax administration much every. It has at least one office in each local government areas in the state. Each local government offices has tax collector agent each town. This could be regarded as operational short coming since it hiders the carrying out efficiently the responsibility changed to them. These includes the following:

Inadequate staffing: the head quarters of the board of internal revenue has division and units with staffs in each of them but their staffs mostly the junior officials are not well educated to the extend that they find it difficult to apply tax laws. The skeletal number of experienced officials are mostly found in urban areas. These few are loaded with jobs as the available staff is not sufficient the lack of experienced tax officials in Enugu south local government have created opportunity far the evader. Tax evader can middle their account up and even direct the ill-equipped, half-backed junior tax officials on what the ought to pays. This will result in loss of appropriate revenue that ought to be realized when properly assessed.

In adequate supply of facilities: A visit to the tax officer headquarter at Enugu state shows one that the offices lack facilities. The tax unit lack vehicles get tax well equipped t the extend where, documents are not given adequate security as a result of the nature of their officers, no comfort able office vis-a-vis their counter parts in the government establishment. Mobility: inadequacy of transport vehicles poor maintenance of transport vehicles resulting in inefficient supervision and co-operation of revenue collection points. Human problems: lack of dedication on the part of revenue agents and tax collector. Total disregard for probity and accountability.

Lack of individual set achievement targets for agents and collector to justify their pay. Mis-management of tax collected: where taxes collected were not been utilized for the purpose for which it was collected. This makes tax payers not go give out their wealth for the nation. Bribery and corruption: in this day, tax collected personal interest has over ride their officials interest in the performance of their duties, consequently affect revenue generation for the nation. Poor accounting record: most business men, traders, professionals do not keep proper records for their income and expenditures. EXTERNAL PROBLEMS Harsh Economic conditions: According to CLA C. S (1981) this is prime of all the external problems.

The harsh economic condition prevalent in the country has led to closing of many business and the rate of inflation which is as a result of various economic measure. The income of tax payer are left with meager disposal income which can not meet their needs. Hence they are left with the options of avoiding tax thereby reducing the revenue derived from tax. Tax evasion: according to Odoh Nich (1998) states that tax evasion is unlawful act of failure on the part of taxable person to disclose his taxable income for the purpose of tax assessment and there by escaping completely from tax liabilities. On a more general note, tax evasion is said to include all those activates which are responsible for an individual or organization not paying the full tax which is legally charge on the tax base.

Tax Avoidance: According to Odoh (1998) states that the tax avoidance is a lawful act of behaviour in which tax payers manipulate the economic situation using the legal devices as being provided in tax structure to reduce this tax liabilities to his advantages. That is, exploiting the legal ocuphades in the tax law to one’s unpatriotic advantage by reducing the tax burden on him or and organization. Tax avoidance can take the form of refusal to earn income, conversation of taxable into man-taxable income. Lack of consideration of social Norms and human Behaviour pattern of revenue Payers: the attitude of local people and the resident towards fulfilling their civic responsibilities were quite counter productive. Many of them did not understand why they should contribute towards the maintenance of local government.

They saw revenue collectors as thieves and were prepared to fight rather pay their tins and dives. The reaction was necessitated by the fact that local people did not feel the impact of the government in any form. They did not see any reason for paying any money to the tax collectors. Lack of government presence: non-provision of tangible benefits, value satisfaction and basic amenities to the revenue payer like road maintenance and lack of face-lift for market and motor parts. Etc. 2. 6 MANAGEMENT AND CONTROL OF TAX COLLECTION AND REVENUE GENERATION. The successful attainment of the aims and objectives of any organization depends to a large extend on the availability of adequate resource and proper management of these resources.

Local government being government oat the grassroots level need adequate resources to work and simultaneously qualified and honest personnel for better management of these resource and for the aims and objective of these resource and for the aims and objective of there reform to be actualized. This financial control are exercised through different means. Management and control of local government revenues. Involves taking steps to ensure that revenue is collected and pod into its treasury, and memoranda. The state government may decide to withhold the grants given to Local government by the federal government for non-compliance with certain regulations.

There are various organization of government that makes the management and control of revenue possible, such as the state ministry of local government which have both consultative and supervisory responsibilities over the administrative of local government. The generation council, the secretary treasure, and his staff have special responsibilities in that regard. The auditor act as a watch dog to the management of local government revenue. Financial control may be classified under broad heading viz. the international and external control. Internal control: the internal control the power exercised over local government councils finances by its members and staff.

It involves the separation of such function so that duties are allocated in such away that function can act as check on the other their procedure are laid down for authorization of expenditure, recorder of revenue and other financial loans action provisions are made for the control and custody of assets of local government councils. Example of in control are: control by the council the role of fiance and general purpose the role of local government treasurer. The role of local government secretary. The role of internal auditors External Control External control of revenue of local government in Nigeria is exercised by respective state government.

This is done in a number of ways, through the ministry of local government publication by government financial institution publication by government memoranda containing or financial memoranda containing a detailed scheme of the control of finances local government and keeping of account. There is also public account committee. The state house of assembly budgetary and the external auditors. 1. LOCAL GOVERNMENT TREASURY MANAGEMENT AND CONTROL. The local government treasury department is established by law, empowered to control and manage fiances of its present local government. The treasure who is the lead of the treasury department is the key figure in the management of finances. Below are section of finances which are under the control of local government treasury.

i, GENENERAL CONTROL OFFICE: Right in the central office and at the helm of affairs is the local government treasurer or the chief officer who co-ordinates the who activities of treasury by administering supervising, direction and over seeing the various section through the sectional heads. ii, ACCOUNT PRODUCT SECTION: this section which is headed by a higher executive offices (H. E. O) is concerned with pre-planning of work, policy formulation, delegation of authority and responsibility and maintenance of adequate system evaluation of result with predetermined objects. It has the internal audit as unit under it. Revenue/licensing officers: the officer who has the office at the local government lead quarter is headed by an executive officer and has various units or branches out side.

These sections see to the collection of various forms of revenue like rates, fees on advertisement, birth and death registration it also issues on bakery houses, bicycle, contractors registration hawker permit and cultage industries and liquor etc. The pay role section: the section see to the preparation of voucher for various evolvement salaries, entitlement, fringe benefit wages, allowance and bills accruing to the staff contractors and other members of the public. It is headed by an executive officer. The rate of section is mainly for the collection of capitation and tenement rates including other form of rate that could be imposed in the public by the council. Expenditures: this section is headed by an executive officer and he keeps record of all expenditure of the council like staff salaries wages allowance and contractors bills of paging.

The cash officer: the cash officer is headed by an assistant executive officer who happens to be the cashier of the council he receive money from the revenue collector and at the same time pays out money, entitlement, bills to the study, contractors and other members of the public. 2. 7 WAY OF IMPROVING LOCAL GOVERNMENT REVENUE GENERATION AND TAX COLLECTION. May of the problems facing the generation of revenue and tax collection in the local government and tax collection in the local government are those that can be corrected to improve their gener