CHAPTER 1

1.0 INTRODUCTION

1.1 BACKGROUND OF STUDY

The world over, taxes is one major source of government revenue, however, not every

government has been able to effectively exploit this great opportunity of revenue generation.

This can be attributed to a number of reasons including the system of taxation; tax legislation;

tax administration and policy issues; over reliance on other sources of revenue (such as foreign

aid and grants); corrupt practices in the system – especially as it relates to the system of tax

collection and the behaviour of citizens towards tax payment; and ease of tax payment (Akintoye

and Tashie, 2013). However, the increasing cost of running government coupled with dwindling

revenue has led various State governments in Nigeria in formulating strategies to improve their

revenue base. (Ahmad, 2005) as cited in (Enahoro and Olabisi, 2012) pointed out that the

objectives of the tax system are multi-dimensional in nature which includes revenue generation,

resource allocation, a fiscal tool for stimulating economic growth and development and social

functions, like redressing the rural-urban population drift. Taxes, and tax systems, are

fundamental components of any attempts to develop a state, and this is particularly the case in

developing or transitional nations. The near collapse of the National economy has created

serious financial stress for all tiers of government (Adenugba and Ogechi, 2013). Despite the

numerous sources of revenue available to the various tiers of government, oil alone accounts for

40 percent of the country’s GDP, 70 percent of budget revenues, and 95 percent of foreign

exchange earnings (Oloyede, 2010). Unfortunately, the serious decline in the price of oil in

recent years has led to a decrease in the funds available for distribution to the states. The need

for state and local government to generate adequate revenue from internal sources has therefore

become a matter of extreme urgency and importance. This need underscores the eagerness on

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the part of state and local governments and even the federal government to look for new sources

of revenue or to become aggressive and innovative in the mode of collecting revenue from

existing sources. Section 16 (b) of the 1999 Constitution of Federal Republic of Nigeria, under

the Economic Objectives, provides that the government should control the national economy in

such manner as to secure the maximum welfare, freedom and happiness of every citizen on the

basis of social justice and equality of status and opportunity. Section 16 (c) of the same

Constitution further provides that the state without prejudice to its right to operate or participate

in areas of the economy other than the major sectors of the economy, manage and operate the

sectors of the economy. Generally, government the world over earns revenue from taxes, non-

tax income and capital receipts.

Revenue:

As stated by the International Monetary Fund (IMF) (2001), revenue is an increase in net worth

resulting from a transaction. For general government units, there are four main sources of

revenue: taxes and other compulsory transfers imposed by government units, property income

derived from the ownership of assets, sales of goods and services, and voluntary transfers

received from other units.

Tax:

Arnold and Mclntyre (2002) defined tax as a compulsory levy on income, consumption and

production of goods and services as provided by the relevant legislation. According to Azubike

(2009), tax is a major player in every society of the world. The tax system is an opportunity for

government to collect additional revenue needed in discharging its pressing obligations. Odusola

(2006) stated that Nigeria’s tax system is characterized by unnecessary complexity, distortion

and largely inequitable tax laws that have limited application in the informal sector that

dominates the economy. (Abubakar 2008) as cited in (Enahoro and Olabisi, 2012) further opined

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that the Nigerian tax system has undergone significant changes in recent times. The tax system is

the process of taxation involving sets of rules, regulations and procedures with the organs of

administration interacting with one another to generate funds for government (Agbetunde,

2010). An efficient and effective tax system offers itself as one of the most effective means of

mobilizing a nation’s internal resources and it lends itself to creating an environment conducive

to the promotion of economic growth. Nzotta (2007) argues that taxes constitute key sources of

revenue to the federation account shared by the federal, state and local governments.

Non-Tax Revenues:

These are other sources of government revenue. They include administrative revenue, gifts,

revenue from government property, revenue from public enterprises, government owned

corporations incomes, central bank revenue and others.

Capital Receipts:

These can be in the form of external loans and debts from international financial

institutions like the International Monetary Fund (IMF) and the World Bank.

Internally Generated Revenue:

Internally generated revenue are those revenues that are derived within the state from

various sources such as taxes (pay as you earn, direct assessment, capital gain taxes,

etc.), and motor vehicle license, among others.

Revenue is the bedrock upon which any government’s electoral promises can be realized

(Shodipo, 2013). It is the enabling factor in the provision of public goods. The state recognises

its unique status. The state government is striving to actualise its dream of making Lagos a mega

city by the year 2015. It is also poised to live up to its responsibility of providing basic

infrastructure, such as roads, drainage, water, education and health-related services needed by its

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ever-growing population (Ebulu, 2008). This study therefore seeks the discover the actualisation

of the mandate of the state government in providing the basic social needs of its citizens solely

through the state’s internally generated revenue

1.2 STATEMENT OF THE PROBLEM

The increasing running cost of government coupled with rapid infrastructural requirement

to meet expanding social needs of citizenry has left various governments with formulating

strategies to improve revenue base. The contending problem of tax evasion, collusion of tax

officers, staggering population increase and diversion of revenue belonging to government into

private pockets remain like a sore, refusing to go away. This in addition to the unscrupulous

activities of some tax consultants engaged curtail revenue drive. While decrying the low

productivity of the Nigerian tax system, “deficiencies in the tax administration and collection

system, complex legislations and apathy on the part of those outside the tax net” are identified as

some of the root causes of inadequate internal revenue generation (Ijewere, 1991 and Ndekwu,

1991) as cited in (Ariyo, 1997). In the case of Lagos state, the story was a sordid affair. By the

turn of the last Century, Lagos had become an international poster - child for the doomsayers of

the coming urban challenge — with a reputation for overcrowded and squalid living conditions,

high rates of crime, poor governance, urban and environmental degradation and transport chaos

(Filani, 2012). For a megacity the size of Lagos, with its huge infrastructural and governance

backlogs, the challenges are enormous. Its transformation is a long- term project, requiring a

combination of clear and consistent leadership, constant reform and innovation, meaningful

engagement with the city’s private and corporate citizens and huge investments (Filani, 2012).

This study seeks to discover how the Lagos state government managed the deplorable revenue

situation and brought a turn around to the situation in the state and the lives of its citizens.

1.3 AIM AND OBJECTIVES OF THE STUDY

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The aim of the study is to assess the revenue generation drive of Lagos state government through

efficient and effective tax administration alongside its impact on the citizens of the state. Since

the bulk of the revenues flow from the citizens’ pockets, the payment compels the citizens to ask

questions and show interest in how those entrusted with the management of the collective wealth

of the citizens, discharge their duties.

The specific objectives of the study are to:

i. Examine the effect of efficient and effective tax administration on internally generated

revenue in Lagos state.

ii. Evaluate the impact of increased revenue generation on the economic well-being of

citizens in Lagos state.

iii. Determine the extent to which efficient and effective tax administration has influenced

economic and infrastructural development in Lagos state.

1.4 RESEARCH QUESTIONS

i. What has been the effect of an efficient and effective tax administration on internally

generated revenue in Lagos state?

ii. How has the increase in internally generated revenue of the Lagos state government

affected the economic well-being of the citizens in Lagos state?

iii. To what extent has an efficient and effective tax administration influenced economic and

infrastructural development in Lagos state?

1.5 RESEARCH HYPOTHESES

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In order to answer the above research questions, the following hypotheses were formulated.

HYPOTHESIS ONE

H0: Effective and efficient tax administration has not increased Lagos state internally generated

revenue.

H1: Effective and efficient tax administration has increased Lagos state internally generated

revenue.

HYPOTHESIS TWO

H0: Increased revenue generation has not affected the economic well-being of Lagos state

citizens.

H1: Increased revenue generation has affected the economic well-being of Lagos state citizens.

HYPOTHESIS THREE

H0: Efficient and effective tax administration has not influenced infrastructural and economic

development in Lagos state.

H1: Efficient and effective tax administration has influenced infrastructural and economic

development in Lagos state.

1.6 SIGNIFICANCE OF THE STUDY

In appraising the Nigerian tax system as a tool for revenue generation, Naiyeju (2010) and

Odusola (2006) asserted that the system is seen as being lopsided, and dominated by oil revenue.

However, 14 years since the return of democracy, efforts by leaders at various tiers of

government have been geared towards arresting the imbalance and coming up with a

regeneration programme that will give the people, for whose wellbeing the government exists, a

new lease of life. This reason largely informed the tradition in Nigeria whereby a government is

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assessed by its ability to provide basic infrastructure such as good roads, potable water,

electricity as well as guaranteeing efficient and effective education and health care

systems. (Ajayi, 2013).

Thus, the study is significant to state governments in Nigeria as it highlights the aggressiveness

and innovativeness of the Lagos state government to generate revenue aside from oil sources and

federal government allocations through effective and efficient tax administration.

This study is significant to international analysts interested in the reforms going on in Lagos

state, what drives this development and the impact on residents of the state.

Finally, the study can serve as a means by which the citizens of the state can appraise the Lagos

state government.

1.7 SCOPE AND LIMITATION OF THE STUDY

This study is delineated to the geographical area of Lagos state. This is because it is believed that

Lagos state serves as a role model for other states in terms of business activities and rules and

regulations guiding various types of businesses in Nigeria with respect to taxation (Adeyeye,

2004). It assesses the revenue generating machinery of the Lagos state government, evaluating

the impact of increased revenue generation on the citizens of Lagos state.

Constraints in the course of the study include shortage of time, lack of finance, uncooperative

respondents, non-knowledgeable respondents, respondents’ bias in answering questions,

inaccessibility to information termed confidential, inaccessibility of respondents and no response

from some respondents.

REFERENCES

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Adenugba, A. A & Ogechi C. (2013). The Effect of Internal Revenue Generation on

Infrastructural Development. A study of Lagos State Internal Revenue Service. Journal

of Educational and Social Research, 3 (2), 419-436.

Adeyeye, G. B. (2004). An overview of personal income tax in Nigeria. (A case study of Lagos

state. Global Journal of Accounting, 1(2), 15-33.

Agbetunde, L. A. (2004). Principle and Practice of Nigeria Personal Income Tax. (1st ed.)

Lagos. El-Toda ventures Limited.

Akintoye, I. R & Tashie, G. A. (2013). The Effect of Tax Compliance on Economic Growth and

Development in Nigeria, West –Africa. British Journal of Arts and Social Sciences,

11(2), 222-231. Retrieved from http://www.bjournal.co.uk/BJASS.aspx

Arnold, J. B. & Mclntyre, J. M. (2002) International Tax Primer, (2nd ed.), Netherlands Kluwer

Law International, The Hague.

Ariyo, A. (1997). Productivity of the Nigerian Tax System: 1970-1990. African

Economic Research Consortium, Nairobi, Research Paper 67.

Azubike, J. U. B. (2009). Challenges of tax authorities, taxpayers in the management of tax

reform processes. Niger Account, 42(2), 36-42.

Babatunde, F. (2013). The Sun Newspapers, Business. July 15, 2013

Enahoro, A. J. and Olabisi, J. (2012). Tax Administration and Revenue Generation of Lagos

State Government, Nigeria. Research Journal of Finance and Accounting, 3(5), 133-139.

Filani, M. O. (2012). The changing face of Lagos: From vision to mission and transformation.

Lagos Reform Report, Ibadan. Foundation for Development and Environmental

Initiatives, Ibadan, Nigeria.

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International Monetary Fund. Government Finance Statistics Manual, 2001.

Nzotta, S. M. (2007) Tax Evasion Problems in Nigeria: A Critique. The Nigerian Accountant,

12(1), 40-43

Naiyeju, J. K (2010): Nigerian Speaks on Taxation: A tool for Social Change Administration in

Nigeria and the Issue of Tax Refund. A paper presented as part of Nigeria’s 50th

Anniversary Celebration at Aso Hall. Oct 1, 2010.

Odusola, A. F. (2002). Kwara State Public Expenditure Review. A Technical Report on State

Public Expenditure Review in Nigeria Submitted to the World Bank.

Oloyede, O. I. (2010). Repositioning the Nigeria’s Tax System: Suggested Policy Measures.

Shodipo, B. (2013) Text of the press briefing by the special adviser to the governor on taxation

and revenue, Mr. Bola Shodipo, to mark the mid-term of the 2nd term in of the Lagos state

governor.

CHAPTER TWO

2.0 LITERATURE REVIEW

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2.1 INTRODUCTION

Nigeria is richly blessed with oil and gas among other mineral resources, but the over

dependence on oil revenue for the economic development of the country has left much to be

desired. According to Ariyo (1997), Nigeria's over dependence on oil revenue to the total

neglect of other revenue sources was encouraged by the oil boom of 1973/74. This was

unsustainable due to the fluctuation in the oil market which have in most cases plunged

the nation into deficit budgets (Omolehinwa, 2011). In the case of Lagos state, it is believed

that the non-implementation of tax laws is making the Lagos state government to lose revenue

that could be generated internally (Adeyeye, 2004). In order to carry out development in all

nooks and crannies of the society, it is the responsibility of the Lagos State Government to

provide direct development to people to a certain level. Development is associated with funds

and much revenue is needed to plan, execute and maintain infrastructures at the state level.

The needed revenue generated for such developmental projects like construction of accessible

roads, building of public schools, health care centres, construction of bridges are generated from

taxes, royalties, haulages, fines, and grants from the states, national and international

governments. These funds are obtained either internally or externally.

2.2 GENERAL REVIEW OF LITERATURE

2.21 REVENUE

The term revenue has been defined by various authors in different ways. According to

Section 162 subsection, 10 of the constitution of the Federal Republic of Nigeria 1999 CAP. 23

Laws of the Federal Republic of Nigeria 2004 "revenue" means any income or return accruing to

or derived by the Government of the Federation from any source and includes -

(a) any receipt, however described, arising from the operation of any law;

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(b) any return, however described, arising from or in respect of any property held by the

Government of the Federation;

(c) any return by way of interest on loans and dividends in respect of shares or interest held by

the Government of the Federation in any company or statutory body.

Adams (2006) defines revenue as the fund required by the government to finance its activities.

These funds are generated from different sources such as taxes, borrowing, fine, fees etc. It is

also defined as the total amount of income that accrues to an organization (public or

private) within a specified period of time. Hamid (as cited in Adenugba and Ogechi 2013).

States’ revenue comprises of receipt from taxation as well as those which are not the proceeds of

taxation, either the realization from the sale of government properties or other interests and

returns from loans and investment earning. Bhartia (2001) contends that revenue receipts

include “routine” and “earned” income. For these reasons, according to him, revenue do not

include borrowing and recovery of loans from other parties, but it includes tax receipts,

donations, grants, fees and fines and so on.

Similarly, Pearce (as cited in Adenugba and Ogechi 2013), defines government revenue as all

the money received other than from issue of and debt, liquidation of investments.

Government revenue includes tax collections, charges and miscellaneous revenues, utility and

insurance trust revenue for all funds and agencies of a government. Public revenue

according to Stephen and Osagie (as cited in Adenugba and Ogechi 2013) is concerned with

various ways in which the government raises revenue. From the foregoing definitions, it can be

said that revenue is the total amount of income accruing to a state from various sources within a

specified period. State government, like the other two tiers of government, has sources and uses

of revenue. Osisami (as cited in Adenugba and Ogechi, 2013) states that there are two types of

revenue accruing to state governments. These are internally generally generated revenue and

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revenue allocated from the Federation account to finance their expenditure programmes. State

governments as the second tier of government in Nigeria derive their revenue from various

sources. However, it should be noted that sources of revenue are by no means uniform

among the states. States derive their revenue depending on the resources available to

them (Anyafo, 1996; Daniel, 1999; and Adam, 2006). The share of federation account to states

constitutes 57.97% in 2002 of the total revenue plus grants and this rose to 65.82% in

2006; while the internally generated revenue declined from 13.38% in 2002 to 8.11% in

2006 (CBN, 2006). The average percentages of internally generated revenue in relation to the

federal allocation were between 5-9 percent for most non-oil producing states in the recent past.

Kano was able to slightly exceed 10% in 2004 to date due to aggressive revenue generation

efforts, with Lagos state as the only exception.

Internally generated revenue are those revenues that are derived within the state from

various sources such as taxes (pay as you earn, direct assessment, capital gain taxes,

etc.), and motor vehicle license, among others. While the statutory allocation from Federation

Account, Value Added Tax constitute the external source. Most states of the federation get

the bulk of their revenue in form of statutory allocation from the federation account.

2.22 TAX ADMINISTRATION

While tax policy and tax laws create the potentials for raising tax revenues, the actual amount of

taxes flowing into the government Treasury, largely, depends on the efficiency and effectiveness

of the revenue administration authorities. Efficiency and effectiveness should be the watchword

in designing a tax administration structure that will give the desired result (Abiola and Asiweh,

2012). Tax administration in Nigeria is the responsibility of the various tax authorities as

established by the relevant tax laws (Kiabel and Nwokah, 2009). Kiabel and Nwokah, (2009)

noted “Tax authority “to mean Federal Board of Inland Revenue, the State board of internal

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revenue and the local government revenue committee. The tax authority in Lagos state is the

Lagos State Board of Internal Revenue.

Weaknesses in revenue administration lead to inadequate tax collections (Adenugba and Ogechi,

2013). The Nigerian tax administration is in line with the British model of tax administration

since 1960 and has been operating this up to 1990 when the self-assessment scheme came into

play which is similar to the American model of tax administration system (Adesola, 2004). The

British model of tax administration assumes tax payers are incompetent as to tax process and tax

authorities do not rely on information supplied by tax payers (Enahoro and Olabisi, 2012). Lagos

state has however adopted the American model of tax administration in deference to the rigid

British model. The American model has been a success in America because of its peculiar

features such as voluntary compliance system, competence of tax payer, efficient data processing

and system which aids detection of fraud. Effective tax administration designed to enhance

revenue generation requires both the commitment of government and time. Successive

Administration of Lagos State in recognition of this developed improved Revenue

Administration structure targeted at increasing internal revenue accruable to the government. As

stated in Adenugba and Ogechi (2013), the main administrative measures taken in the past ten

years to improve revenue include:

• Accelerated Revenue Generation Programme (ARGP) – 1994

• CITI Bank Direct Monitoring and Reporting of Internal Revenue System – 1999

• Electronic Banking System of Revenue Collection and Monitoring (EBS-RCM) – 2000

• Granting Full Autonomy to Lagos Board of Internal Revenue – 2006.

2.23 SOURCES OF REVENUE

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The sources of revenue of the state government are divided into two parts viz: recurrent revenue

and capital receipts.

a) THE RECURRENT REVENUE:

i. Taxes: Ogundele (1999) defined tax as “the levy by public authorities with a tax jurisdiction,

of compulsory contributions by citizens to defray part of the cost of government activities in

providing the needs of the society. The taxes the states government collect are personal income

tax; (excluding those of the Armed Forces, external affairs officers, foreign nationals,

residents of the Federal Capital Territory, Abuja and the Nigerian Police Force) football

pools and other betting taxes, capital gains tax, entertainment tax, stamp duties, capital transfer

tax.

ii. Licenses, Fees and Fines: These embrace among others, motor vehicles and drivers’ licenses

land registration and survey fees and fines imposed on offenders.

iii. Earnings from economic activities: State governments do engage in some activities

with a view to making profits. These include establishments of banks, and investment ventures

(For example; Odua Investments) which involves sale of goods and services. Others are

lotteries, rent on government properties and dividends.

iv. Allocation from the Federation Account: State governments are entitled to monthly

allocation from the Federation Account, which they share horizontally among themselves. It is,

at present twenty-four percent of the total amount that accrues to the Federation Account.

v. Value-added Tax (VAT) allocation: It should be noted that VAT replaced sales tax

which used to be exclusive preserve of the state governments. Therefore, at the inception of

the VAT in 1994, the state government was given 80% of the proceeds from VAT. Although the

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percentage has now been reduced to 50%, the state government still receives the largest share of

the VAT proceeds.

b) THE CAPITAL RECEIPTS:

i. Grants: These usually come from the Federal Government. The purpose could be to enable a

new state take off, or to carry out specific projects or to finance Federal Government

programmes in the state. A good example is the projects under the Directorates of Food, Roads

and Rural Infrastructures (DIFRRI).

ii. Loans: These can be internal or external loans. The internal loans represent borrowings by

state governments from sources within the country. The sources include individuals,

organizations such as commercial banks, the Federal Government or other states. On the other

hand, the external loans are often taken from the World Bank, International Monetary Fund

(IMF), as well as foreign countries or organizations. However, approval must be received

from the Federal Government before the loans can be obtained. Besides there is a limit to

the amount of loan a state government can borrow or have outstanding at a time.

i. Financial Aids: These are funds from foreign countries or charitable international

organisations such as UNICEF to execute in the states some humanitarian programmes like

children immunization, control of epidemic diseases. The aids could also be meant to assist

states that suffer some disasters.

2.24 CHALLENGES OF TAX ADMINISTRATION IN LAGOS STATE

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Under the administration of tax in Nigeria, Ayua (1996) pointed out that the major problem lies

in the procedures, machinery and approaches adopted in collection, assessment and corrupt

practices of tax. Naiyeju (2005) pointed out that most of the tax authorities in Lagos State lack

the desired institutional capacity to administer tax system effectively. Mostly employees paid the

bulk of tax at the time in the state. Politicians, the rich, the professionals and the privileged

individuals were inequitably taxed. Fashola (2009) noted that the corruption risk erodes the tax

yield and confidence in the tax system and at the Local Governments level, there is a dearth of

capable hands to administer the relevant tax provisions efficiently. According to Ekpo and

Ndebbio (1998), other problems of tax administration centre on inadequate personnel in terms of

quantity and quality. The shortage of qualified tax personnel is partly responsible for the poor

enforcement. At the local government level, tax collectors include messengers and tax clerks

who are not knowledgeable in tax practices supervise some daily-rated employees. This category

of staff are generally not adequately equipped to carry out the tax operations. It is observed that

due to their low level of education, tax officials are not conversant with the tax laws and

regulations (Enahoro and Jaiyeola, 2012). The sharp and dishonest practices by some tax

officials, especially at the local government level, posed a serious threat to tax administration in

Lagos state.

2.25 STRATEGIES FOR REVENUE GENERATION

Hofer and Schedal (as cited in Adenugba and Ogechi, 2013), described strategy as a game plan

through which aims and objectives of an organization are achieved. They also defined the

strategy of revenue generation as the fundamental pattern of present and planned resource

department, and environmental interaction that indicate how the organization will achieve its

aims and objectives.

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Furthermore, for effective revenue generation, Hofer and Schedal (1978) suggested the

following strategies:

i. Introduction of additional sources of revenue.

ii. Providing an incentive for extra efforts of the revenue generation staffs.

iii. Periodic raiding by officer of the revenue generation.

iv. Efficient and effective collection of existing taxes.

v. Public enlightenment and campaign that will educate the tax payer on the

importance of prompt payment.

Lagos State has enjoyed strong revenue growth in recent years, which has triggered rapid

expenditure expansion, especially on the capital budget. The growth in revenue has been because

of high world oil prices, a growing economy, increased federal transfers, and most significantly,

increased Internally Generated Revenues (IGR) (World Bank review, 2010). Monthly IGR for

Lagos State has increased from N 0.6 billion per month in 2002 to N 15 billion in 2009. Going

forward, the state recorded N 185.9 billion in 2010, which increased to N 202.76 billion in 2011

and rose further to N 219.2 billion in 2012. About N 120.25 billion was realised from Pay as

you Earn (PAYE) in 2011; N 7.97 billion from direct assessment, and N 74.54 billion

from other sources, while N 104.681 billion came from PAYE in 2010; N 7.51 billion from

direct sources, and N 73.704 billion from other sources. Overall, total IGR collections have

more than doubled in real terms since 2004, from 2.4 percent to 3.5 percent of Gross State

Domestic Product (World Bank Review, 2010). The government continues to undertake the

necessary reforms to increase internally generated revenue in the state. The State revenue profile

has improved markedly. Strong IGR growth has led to a substantial change in the percentage

share of revenue between Transfers and IGR. Since 2006, the share of IGR in Lagos State

revenue (excluding grants) has risen significantly above par to an average of 61 percent,

making Lagos much less reliant on federal revenues that are highly susceptible to oil price

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fluctuations. The share of capital receipts in state revenue has been stable at about 5 percent, but

rose sharply in 2007 to 14 percent, owing to one - off proceeds from the sale of shares (Table 1).

Table 1:

Source: Lagos state treasury.

Further analysis by source of revenue indicates that the composition of IGR has not changed

substantially over the last eight years. The largest category remains taxes (essentially personal

income tax and capital gains tax), which represent usually 75-83 percent of IGR (See Table 2).

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Table 2: SUMMARY OF LAGOS STATE INTERNALLY GENERATED REVENUE: YEAR 2006 - 2011

Source: Lagos state treasury.

Other IGR categories include fines and fees, licenses, earnings and sales, rents on government

property, interest payments and dividends, contributions (actually some reimbursements by the

FGN), and miscellaneous. The Lagos State Government is currently engaged in a legal battle

with the Federal Government over the collection and retention of Sales Tax. Under the case, the

Lagos State Government. It is also contesting the fairness of the revenue allocation formula that

distributes the sales tax revenues equally amongst all states when the bulk of Nigeria’s sales tax

19

revenue is collected from Lagos State. A positive outcome for Lagos on this case would result in

a significant increase in the share of sales tax revenue in IGR. The increase in IGR has been the

result of several reforms implemented by the State Government. These reforms have focused on

the restructuring of the state’s Internal Revenue Service, introduction of more convenient and

fraud free processes of tax collection process, and a vigorous taxpayer education campaign.

Broadening of tax base:

Internally Generated Revenue (IGR) collection has increased substantially, owing to the

broadening of the tax base and the tightening of collection processes against various types of

fraud. As at 2005, individual taxpayers totalled about 4 million and this figure was projected to

reach 5 million by 2010, or 50% of official residents, up from 44%. Corporations grew to

330,000 in 2007 from about 250,000 in 2004, as the state sought to diversify its taxpayer profile

by bringing more medium-scale enterprises into the tax net. However, despite diversification

efforts, taxes related to the 10 largest corporations account for a significant share of Lagos’ total

IGR -20 percent. (World Bank Review 2010)

Computerization of revenue collection and monitoring:

In 2000, the Lagos State Government (LASG) put in place a new computerized infrastructure for

tax collection and monitoring known as the Electronic Banking System of Revenue Cycle

Management (EBS-RCM). The EBS-RCM is a sophisticated information network system

linking Tax Stations & other Revenue Agencies to lodgement banks. The Objective of the EBS-

RCM is to go online with the Direct Bank Lodgement System (DBLS) of the revenue collection

process and provide information for tax administration and planning while monitoring and co-

ordination of all revenue generating activities of the state. As a result, the system has led to the

introduction of more effective and fraud reducing measures such as automated payment receipts

and electronic tax clearance certificates. Alpha-Beta Consulting (ABC) Limited was appointed

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as the sole monitoring agent to control and monitor the collection of State revenue using the new

system. The responsibilities of ABC under this arrangement include:

i. Monitoring and reporting on all revenue generation, collection, and accounting activities

and operations of the Lagos State Board of Internal Revenue and all Lagos State

ministries, departments, and agencies (MDA’s).

ii. Developing and maintaining a comprehensive database of taxpayers in LAS, including

the introduction of a unique tax identification number for all taxpayers.

iii. Ensuring the computerization of processes, procedures, and documentation in respect of

Lagos State revenue collection and accounting.

iv. Integrating the revenue generation, collection, and monitoring activities of all other tax

consultants fully within the EBS-RCM infrastructure.

v. Training staff of revenue-generating agencies on EBS-RCM.

Increased autonomy of the Lagos State Board of Internal Revenue:

In 2005, a new Board of Internal Revenue (BIR) was created with a member representation

including more individuals from outside public service, and acting through the Lagos State

Internal Revenue Service (LIRS) that has large operational autonomy to manage the collection

and monitoring of revenue. The new BIR and LIRS commenced operation in November 2005.

The BIR is a regulatory and supervising agency whereas the IRS is the actual service provider

in terms of revenue collection and monitoring. The LASG was convinced that a properly

organized public agency enjoying sufficient autonomy, especially in the areas of human resource

management and budgets, could in due course take over a number of functions performed by the

consultants at a lower cost to the government and ultimately the taxpayer.

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Introduction of a Self-Assessment tax filing system:

The new system was introduced in 2008 and is aimed at making tax payment convenient as well

expand the taxpayers list. Individuals can conveniently pay their taxes at any of the 1,200

branches of the designated banks as well as all the LIRS tax stations spanning all over the state

and receive their receipts within 72 hours of payment.

Taxpayer education campaigns and improved taxpayer services:

The Lagos State Internal Revenue Service (LIRS) has pursued a vigorous taxpayer education

campaign and expanded its network of taxpayer service points in the State. As a way of

encouraging Lagos residents to embrace tax payments as a measure of their responsibility to the

society, thereby making them pay taxes voluntarily without being forced, enlightenment efforts

has been boosted through tax campaigns in the print media, radio and television. These

campaigns have been taken to traditional rulers and major trade associations as a way of co-

opting them into the tax drive. Moreover, as a means of taking tax awareness and education to

the potential tax-paying public as well as bringing the tax assessment and revenue collection

closer to them, the LIRS has also established several stations in markets and bank branches

throughout the state. These explain how to fill in tax return forms and respond to all other types

of taxpayer enquiries.

In appraising the impact of revenue on citizens and state development, (FIRS 2008) posited that

beyond revenue, a country must also be able to prioritize its expenditure pattern and its national

plan in a way that will give the country the best from whatever resources the country

has. Though the following is not exhaustive, development would involve the availability of the

following:

22

a) Social infrastructure such as in education and health with emphasis on continuing

education and constantly improving health care.

b) Physical infrastructure to enable private sector investment i.e. energy, transportation, security

of life and property.

c) Access to Property, Capital, and Opportunity for Individual and Communal Development.

d) Provision of social amenities for the young, the disadvantaged, the physically challenged, the

old and the dead.

e) Security of Lives and Property.

In buttressing the above, Adeyeye (2004) stated that “The money collected from taxes should be

judiciously spent on programmes that would improve the standard of living of the citizens of the

state.”

2.3 THEORETICAL FRAMEWORK

The fiscal federation theory was adopted as the basis for this work. The public sector in nearly

all countries consists of several different levels. The basic issue is one of aligning

responsibilities and fiscal instruments with the proper levels of government. As Alexis de

Tocqueville (as cited in Oates, 1999) observed more than a century ago, “The federal system

was created with the intention of combining the different advantages which result from the

magnitude and the littleness of nations”. However, to realize these “different advantages,” we

need to understand which functions and instruments are best centralized and which are best

placed in the sphere of decentralized levels of government. This is the subject matter of fiscal

federalism. To carry out their functions, the various levels of government require specific fiscal

instruments. On the revenue side, governments will typically have access to tax and debt

instruments. The normative framework for most of the literature in fiscal federalism consists of

23

the traditional principles of welfare economics (Oates, 1999). From this perspective, institutions

are evaluated by virtue of their impact on efficiency in resource allocation and the distribution of

income. Quigley (1997) said, “The delivery of public services, the structure of taxation, and the

economic relations within nations are greatly affected by the partitioning of space into regions”.

Musgrave (as cited in Quigley, 1997) categorised the economic functions of government into

three branches: the stabilization branch, the distribution branch, and the allocation branch. The

stabilization branch is responsible for aggregate demand, fiscal policy, and for maintaining a

stable price level. The distributional branch is responsible for tax and transfer programs, so that a

given level of economic efficiency is consistent with ethical notions of the appropriate

distribution of household incomes. The third, the allocation branch, is concerned with the

production of those goods and services, for which competitive private markets fail to operate

efficiently and it is to this branch that this study relates. In contrast to the first two important

aspects of government activity, for the allocation branch, which produces goods and services,

there are strong technical reasons for providing goods and services at the local level - depending

upon economies of scale in production and diversity of tastes in demand. Thus, the appropriate

economic role for regional government and for lower levels of government is to be found in the

provision of public services, infrastructure, and in the organization of public goods supply. The

DECENTRALISATION THEOREM (Oates, as cited in Quigley, 1997) tells us that, for an

important class of publicly provided goods, namely those whose production is characterised by

constant returns to scale and whose technical character rivals that of private goods, provision by

lower levels of government is superior to provision by a single government or by higher regional

authorities. The theoretical reason is by now clear. Economic welfare will improve, as the

provision of services for each group is closer to each member household's optimum. In the

United States, the central government has turned back significant portions of federal authority to

the states for a wide range of major programmes, including welfare, Medicaid, legal services,

24

housing, and job training. The hope is that state and local governments, being closer to the

people, will be more responsive to the particular preferences of their constituencies and will be

able to find new and better ways to provide these services (Sharma, as cited in Arowolo, 2011).

The other theorem about the design of regions for the production and allocation of public goods

has been termed the CLUB THEOREM (Buchanan, as cited in Quigley, 1997). This theorem is

relevant for the many public goods which exhibit some form of congestion, but which are also

subject to economies in cost sharing among citizens. Under these conditions, the optimal sizes of

regions and groups arise from an equilibrating process, and may be different for different groups

of the population or for different goods. On the one hand, the gains to an increased size of the

region (or the "club") arise from the larger number of people, over which the average cost of

service provision can be spread. On the other hand, efficiency losses from increased size of

regions arise from congestion. That is, when the number of people with whom the public good

must be shared increases, this reduces the quality of the good. According to the club theorem,

the appropriate size for a group to share in a collective good, is one in which the marginal costs

from additional congestion (arising from increased size) are offset by the marginal benefits from

the cost sharing management (arising because the costs of joint consumption can be spread over

more people) (Quigley, 1997). In the context of developing countries like the Nigerian state,

there are at least three additional issues having important implications for the choice of

centralised versus decentralised government finance (Arowolo, 2011). These issues are

essentially dynamic in nature and include the effects of centralization on revenue capacity; the

relationship between the level of government providing the services and administrative

efficiency; and the effects of centralization on dynamic efficiency or administrative

responsiveness. Revenue capacity can include an enhanced ability to raise revenues by levying

and collecting certain taxes locally. It can also include the ability to recover costs for area-wide

public services from the tax revenues generated in those areas. The former is an issue in tax

25

administration: the latter is a rough approximation of user charge finance (Akindele and Olaopa,

2002). The tax administration issue can cut two ways. On the one hand, local authorities may

possess an inherent comparative advantage in the valuation of local land and property for tax

purposes, and in the estimation of agricultural output. Similarly, for the taxation of mobile

financial resources, or even in evaluating the total incomes of individuals, national authorities

may possess a natural comparative advantage. On the other hand, local authorities may not

initially be as well trained and thus, would be less capable of revenue collection, regardless of

the comparative advantage of their formal organization. The second issue, administrative

efficiency in service provision and tax collection, can also cut two ways. A presumption, in

developing countries that central government employees are more competent (because they are

recruited nationally) is surely rebuttable (Quigley, 1997). Moreover, it may be completely offset

by the specialised knowledge, of local officials, about adaptations of services to local conditions,

or about potential economies of service production in particular circumstances. Thirdly, the

dynamic and responsiveness issues tend to favour greater scope for service provision and

taxation at lower levels of government. The advantages of local provision may include both

adaptability in service production and increased flexibility in administration. Thus, it may be

well worth sacrificing some of the short run efficiency of central government provision, to reap

the long run benefits of local provision by more adaptable local officials. The next step in the

theoretical framework is to determine the appropriate taxing framework. The division of

revenue sources among federal and subnational governments constitutes the tax assignment

problem (Anwar Shah, 2007). The “assignment problem,” or the allocation of expenditure,

regulatory, and tax functions to various orders of government, is the most fundamental issue in a

federation. The literature on fiscal federalism argues that finance should follow function. In

other words, assigning responsibilities for spending, including the exercise of regulatory

functions must precede the assignment of responsibilities for taxation because tax assignment is

26

generally guided by the spending requirements of the different orders of government and cannot

be determined in advance. It may be desirable to decentralise taxation at the same time as

decentralising spending, so that subnational governments will not have to rely exclusively on

grants from the national government. If subnational governments are not responsible for raising

at least some level of their own revenues, they may have too little incentive to provide local

public services in a cost-effective way. From the foregoing, we can summarise the role

assignment, which flows from the basic theory of fiscal federalism. The central government is

expected to ensure equitable distribution of income, maintain macroeconomic stability and

provide public goods that are national in character. Decentralised levels of government on the

other hand are expected to concentrate on the provision of local public goods with the central

government providing targeted grants in cases where there are jurisdictional spill-overs

associated with local public goods (Arowolo, 2011). Once expenditure and regulatory

assignments have been agreed on, tax assignment and the design of transfers become critical

elements in matching expenditure needs with revenue means at various orders of government.

Although tax assignment can be undertaken independently of expenditure assignment, – a

common practice in developing countries – the advantages of a centralized tax administration

and a decentralized provision of public services becomes apparent when tax assignment reflects

anticipated spending. Such arrangements prevents an overdependence by state and local

governments on intergovernmental transfers, which can otherwise distort local spending

priorities. Four general principles require consideration in assigning taxing powers to various

governments (Anwar Shah, 2007).

i. First, the economic efficiency criterion dictates that taxes on mobile factors and tradable

goods that have a bearing on the efficiency of the internal common market should be

assigned to the national government. Subnational assignment of taxes on mobile factors

27

may facilitate the use of socially wasteful beggar-thy-neighbour policies to attract

resources to own areas by regional and local governments.

ii. Second, national equity considerations warrant that progressive redistributive taxes

should be assigned to the national government. This assignment limits the possibility of

regional and local governments’ following perverse redistribution policies using both

taxes and transfers to attract high-income people and to repel low-income ones. Doing

so, however, leaves open the possibility of supplementary, flat rate, local charges on

residence-based national income taxes.

iii. Third, the administrative feasibility criterion (lowering compliance and administration

costs) suggests that taxes should be assigned to the jurisdiction with the best ability to

monitor relevant assessments. This criterion minimizes administrative costs as well as the

potential for tax evasion. For example, property, land, and betterment taxes are good

candidates for local assignment because local governments are in a good position to

assess the market values of such assets.

iv. Fourth, the fiscal need, or revenue adequacy, criterion suggests that, to ensure

accountability, revenue means (the ability to raise revenues from own sources) should be

matched as closely as possible to expenditure needs. The literature also argues that long-

lived assets should primarily be financed by raising debt to ensure equitable burden

sharing across generations.

The final element of this basic theory to note is the need for fiscal equalization. Mancur Olson

argues in a paper by Adenugba and Ogechi (2013) that, if a political jurisdiction and benefit area

overlap, the free-rider problem is overcome and the marginal benefit equals the marginal cost of

production, thereby ensuring the optimal provision of public services. Equating the political

jurisdiction with the benefit area is called the “principle of fiscal equivalency” and requires a

separate jurisdiction for each public service. In concluding our theoretical framework, our

28

attention is drawn to the dangers of decentralized levels of government relying too heavily

on intergovernmental transfers for financing their budgets.

CONCEPTUAL FRAMEWORK

Lagos is a mega-city of an estimated 16-21 million inhabitants that has suffered for decades

from large-scale poverty, rampant crime, environmental degradation, and insufficient public

services (World Bank Report, 2010). Over the last decade, however, Lagos State has achieved

what many would not have believed possible, sustaining rapid growth, improving infrastructure

and services, reducing crime significantly, and bringing millions out of poverty. While the

record of poverty reduction in Nigeria as a whole has been disappointing, during the last decade,

Lagos State has achieved major results in generating inclusive growth. In 2003 Nigeria adopted a

home-grown poverty reduction strategy referred to as the National Economic Empowerment and

Development Strategy (NEEDS). This strategy was later decentralised to the state level in 2004.

Following the example of the Federal Government, Lagos State formulated and adopted the

Lagos State Economic Empowerment and Development Strategy (LASEEDS) in 2005. It is “a

poverty reduction strategy aimed at achieving cohesive coordination of the development process

through adoption of a bottom-up approach and inclusiveness of stakeholders” (Ehingbeti, 2008).

Despite strong national GDP growth, the official poverty headcount in Nigeria declined only

marginally between 2004 and 2010 from 48% to 46% according to the National Bureau of

statistics (2013). In Lagos, by contrast, the poverty rate declined from 57% to 23% during this

period (World Bank Review, 2010). Reforms that brought visible improvements to public

services in Lagos helped foster greater trust of Government, which in turn facilitated increases in

internally generated revenues to meet the growing challenges of urbanization. The Lagos State

Government recognizes that sustaining the strong momentum in growth and poverty reduction

will not be easy. Rapid economic and population growth have made Lagos increasingly

congested, which can be associated with soaring rental rates, traffic jams, and growing demand

29

for public services that has put particularly strain on water and power. Increases in tax rates and

tax collection have boosted internally generated revenue (IGR), and this has been utilised in

providing social services to the citizens. Some of these include:

i. Integrated Mass Transit System: In 2003, the Lagos state government created the

Lagos Metropolitan Area Transport Authority (LAMATA), signalling its intention to re-

orient the way in which transport services were managed (Mobereola, 2006). One of the

most effective of LAMATA’s initiatives has been the introduction of a Bus Rapid Transit

(BRT) system on the Mile 12 to CMS corridor. A fleet of high-capacity buses runs on a

segregated, dedicated lane for about 65 percent of the entire corridor, significantly

reducing traffic congestion (Filani, 2012).

ii. Water Supply: Out of a total estimated water demand of 1,800 million litres per day in

Lagos State, only a third is supplied by public agencies (Filani, 2012). To improve water

supply, the state government has made significant investments to rehabilitate the

waterworks and to privatise the Lagos State Water Corporation. It has also focused on

constructing and refurbishing micro- and macro- waterworks, improving power

generation for water projects, providing efficient bill collection, and repairing or

rehabilitating of collapsed boreholes (Lagos state government, 2009).

iii. Power Supply: Lagos state consumes between 45 to 50 per cent of the electricity

generated in Nigeria and generates only 20 percent of its electricity supply (Filani, 2012).

In recent years the government has turned to independent power producers to help

alleviate power supply problems, particularly in Lagos megacity. An independent power

project implemented in 1999 by AES Nigeria, a subsidiary of AES USA, is responsible

for generating 270 megawatts of power through nine barge-mounted gas turbines, with

an option of upgrading to 540 megawatts. The $12 million project was financed by a

30

consortium of four foreign banks and three foreign institutions (Lagos state government,

2009)

31

INTERNAL REVENUE

CAPITAL RECIEPTSNON TAX REVENUES

TAXES

SOCIAL INFRASTRU

CTURE

PROPERTY, CAPITAL AND COMMUNAL

DEVELOPMENT

PHYSICAL INFRASTRU

CTURE

SECURITY OF LIVES

AND PROPERTY

CARE FOR NON

WORKING POPULATIO

N

Source: Author’s Design

REFERENCES

Abiola, J. & Asiweh, M. (2012). Impact of Tax Administration on Government Revenue in a

Developing Economy – A Case Study of Nigeria. International Journal of Business and

Social Science, Special Issue 3(8), 99-113

Adams, R. A. (2006). Public Sector Accounting and Finance. Lagos, Nigeria: Corporate

Publishers Ventures

Adenugba A. A, & Ogechi. C. F, (2013). The effect of Internal Revenue Generation on

Infrastructural Development. A study of Lagos State Internal Revenue Service. Journal

of Educational and Social Research. 3(2), 419-436

Adeyeye, G.B., (2004). An Overview of Personal Income Tax in Nigeria: A Case Study of

Lagos State. Global Journal of Accounting 1(2), pp. 15-33

Akindele, S.T. & Olaopa (2002). Fiscal federalism and local Government Finance in Nigeria: An

Examination of Revenue, Rights and Fiscal Jurisdiction. Contemporary Issues in Public

Administration. Pp. 46-64.

32

Anwar, S. (2007). Institutional Arrangements for Intergovernmental Fiscal Transfers and a

Framework for Evaluation in R. Broadway and Anwar S (Eds.) Intergovernmental Fiscal

Transfers (pp. 293–317). Washington, DC.

Anyafo, A. M. (1996). Public Finance in a Developing Economy: The Nigerian Case. Enugu,

Nigeria: Department of Banking & Finance, University of Nigeria.

Ariyo, A. (1997). Productivity of the Nigerian Tax System: 1970-1990. African

Economic Research Consortium, Nairobi. Research paper 67.

Arowolo, D. (2011). Fiscal federalism in Nigeria: Theory and dimensions. Afro Asian Journal of

Social Sciences 2(2.), pp. 1-21

Ayua, I. A. (1996). The Nigerian Tax Law, Ibadan, Spectrum Law Publishing, Oyo.

Bhartia, H. L. (2009). Public Finance. (14th Ed.), New Delhi, Vikas Publishing House PVT Ltd.

Bucanan, J. 1965. An Economic Theory of Clubs, Economica.

Central Bank Of Nigeria, Annual Report 2006.

Ehingbeti, (2008) 4th Report and Summary of Proceedings. Lagos: Lagos State Ministry of

Information and Strategy

Ekpo, A.H. & Ndebbio, E.U. (1998). Local Government Fiscal Operations in Nigeria. African

Economic Research Consortium (AERC), Nairobi. Research Paper 73

Enahoro, A. J. & Olabisi J. (2012). Tax Administration and Revenue Generation of Lagos State

Government, Nigeria. Research Journal of Finance and Accounting, 3(5) pp. 133-139

Fashola, B. R (2009): My Fellow Citizens of Lagos State, Speech Delivered at the Inauguration

and Fund Raising Ceremony of Eko Club (London)

33

Federal Inland Revenue Service, 2008. Internally Generated Revenue (IGR) and the challenges

of National Development. A presentation at the first National Roundtable for good

proactive laws and governance.

Kiabel, D. B. & Nwokah, G. N. (2009) Boosting Revenue Generation by State Governments in

Nigeria: The Tax Consultant Option Revisited. European journal of sciences, 8(4).

Retrieved from: http://www.eurojournals.com/ejss_8_4_02.pdf.

Lagos State Government (2009). Ministry of Transport: Activities and Achievements. May 2007

to December 2008. Lagos.

Lagos State Government (2013). Lagos State Digest of Statistics. Lagos Bureau of Statistics,

Ministry of Economic Planning and Budget, Alausa, Lagos, Nigeria.

Mobereola, D. (2006). Strengthening Urban Transport Institutions: A Case Study of Lagos State.

Discussion Paper No. 5, Affordable Transport Services

Naiyeju J. K (2010): Nigerian Speaks on Taxation: A tool for Social Change Administration in

Nigeria and the Issue of Tax Refund. A paper presented as part of Nigerian 50th

Anniversary Celebration at Aso Hall Oct 1, 2010.

Oates, W. (1999). An Essay on Fiscal Federalism. Journal of Economic Literature, 37

pp. 1120–1149

Ogundele, A. E. (1999. Elements of Taxation. (1st ed) Lagos, Libri service Nigeria limited,

Lagos, Nigeria.

Quigley J. M. (1997). Fiscal Federalism and Economic Development: A Theoretical Overview.

In A. E. Andersson, B. Harsman and J. M. Quigley (Eds.), Government for the future –

34

Unification, Fragmentation and Regionalism. (pp. 83-101). Elsevier Science, B. V

limited.

Stephen, N. M. & Osagie E. (1985). A textbook of economics for West African students. Ibadan,

Nigeria: University Press Limited

World Bank Report, 2010. Lagos Rolling Public Expenditure Review 1 May 2010 Poverty

Reduction and Economic Management, AFTP 3, AFCW 2, Africa Region.

https://openknowledge.worldbank.org/bitstream/handle/10986/12357/679360ESW0P117

0IC0disclosed04050120.txt?sequence=2

World Bank Report, 2014. Program Information Document. Lagos second state development

policy.http://wwwwds.worldbank.org/external/default/WDSContentServer/WDSP/IB/

2014/02/13/000414397_20140218094714/Rendered/INDEX/Lagos2PIDA

35

CHAPTER THREE

3.0 RESEARCH METHODOLOGY

3.1 INTRODUCTION

The entire focus of this chapter is on the research methods available and adopted in collecting

data and processing them in achieving the objectives of this research work. The target population

of the study and the technique of sampling employed is stated in this section. This aspect of the

research proposal will discuss the selected research instrument to be used in data collection and

its characteristics. This section also contains a summary of proposed statistical tools and

methods of data analyses.

The various methods adopted in this project work were selected considering a number of factors.

The most relevant factors involved the limitations involved in getting representative data to

show the revenue generation drive of the Lagos state government and the impact on its citizens

amidst other constraints including finance and time available to the researcher.

According to Kothari, (2004), “Research methodology is a way to systematically solve the

research problem. It may be understood as the science of studying how research is done

36

scientifically. In it we study the various steps that are generally adopted by a researcher in

studying his research problem along with the logic behind them”.

3.2 RESEARCH DESIGN

According to Sellitz et al. (as cited in Asika, 2010) “A research design is the arrangement of

conditions for collection and analysis of data in a manner that aims to combine relevance to the

research purpose with economy in procedure.”

Kothari, (2004), also stated, “The research design is the conceptual structure within which

research is conducted; it constitutes the blueprint for the collection, measurement and analysis of

data. As such the design includes an outline of what the researcher will do from writing the

hypothesis and its operational implications to the final analysis of data”.

This research is a non-experimental research based on survey design. It involves the gathering

of information to give a general overview of the revenue generation drive of government and the

impact on the citizens of Lagos state. This research design is based on population characteristics

and representative samples of the population. It is structured to obtain data using questionnaires

to give answers to the research questions and hypothesis stated in this study. Data used

comprises only data obtained from primary sources. The primary data was gathered using

questionnaires administered to the respondents. Survey method has the advantages of collecting

a large volume of data from a very large population at a relatively low cost (Abiola and Asiweh,

2012). A large volume of data can be easily generated and analysed to give results that represent

the population of study. This makes the use of this method most appropriate in this study. The

use of this method had become more suitable given the geographical disparity of the area to be

covered. According to Sekaran and Bougie (2010), “Questionnaires are most useful as a data

collection method, especially when large numbers of people are to be reached in different

geographical regions”. This gives credence to the use of this methodology.

37

3.3 POPULATION OF STUDY

The target population of study is the total number of elements or attributes in our focus of

interest. From this population, samples are selected to gather data for analysis and interpretation.

The focus of this research work is on the eligible individual taxpayers and organisations in the

Lagos state. This includes workers in both the formal and informal sector. Those in the formal

sectors are all civil servants and or officers with their different salary level and proportionate tax

rates e.g. Teachers, Doctors, Accountants, all workers at the State and local government level.

The informal sector forms a large percentage of the working or taxable population of Lagos

state. They include all self-employed and their employees and or agents. The sample population

for this study consists of 5 Local Government Areas purposively selected out of the 20

Local Government Areas in Lagos state, Nigeria being homogeneous and having no selection

bias.

3.4 SAMPLING AND SAMPLING TECHNIQUE

The sampling technique is a function of the scope and the research design chosen for the study.

The sampling technique that was employed for this research project is the cluster sampling

technique. The choice of cluster sampling technique was taken after considering the fact that

respondents are scattered across the area of Lagos state. These groups will form clusters from

which samples will be selected. Fifty copies of questionnaires were administered to various

individuals of different ages, sex and educational backgrounds. The questionnaires were

analysed using the Likert Summated Rating scale.

3.5 SOURCES OF DATA AND RESEARCH INSTRUMENT

In the course of the research work, the researcher made use of both primary and secondary

sources of data. Primary data included oral interviews and questionnaires issued to respondents.

Secondary data were obtained for literature review and for analysis. Sources of secondary data

38

include textbooks, tax bills, newspaper articles, published journals, reports as well as statistics

from the Lagos state Treasury.

3.6 STATISTICAL TOOLS AND ANALYTICAL PROCEDURE

The statistical tools employed in analysis of data are focused on getting a deep understanding of

the sample via responses of the population. The data gathered for the study were subject to

descriptive and inferential statistics. The descriptive statistics involves the use of simple

percentage. The inferential statistics involves the use of Spearman’s Rank correlation which is to

show the direction of relationship between variable under the study and to show the scale for the

data which is interval.

Spearman’s Rank correlation:

Rs = 1−6∑

i=1

n

d i2

n(n2−1)

Where ∑i=1

n

d i2=∑i=0

n

R ¿¿) – R (Y 1) 2

The DECISION RULE for the two sided hypothesis adopted in this study is to reject H0 at the

appropriate α level; if the computed Rs is greater than the critical α value corresponding to

1 - α2 .

39

REFERENCES

Abiola J. and Asiweh M. (2012). Impact of Tax Administration on Government Revenue in a

Developing Economy –A Case Study of Nigeria. International Journal of Business and

Social Science, Special Issue 3(8). Pp. 99-113.

Asika, N. (2010). Research Methodology in the Behavioural Sciences. Lagos, Longman Nigeria

Plc.

Sekaran, U. and Bougie, R. (2010) Research Methods for business: A skill building Approach

(5th ed.), West Sussex, UK. John Wiley & Sons Ltd.

40

CHAPTER FOUR

4.0 DATA PRESENTATION AND ANALYSIS

4.1 INTRODUCTION

This chapter deals with the presentation and analysis of collected data from the questionnaires

administered to respondents and the secondary data collected from available statistics from

journals, relevant publications and the World Wide Web.

In order to obtain accurate and reliable information for this project, the researcher adopted two

methods for data collection. These are questionnaire and statistical data. The questionnaire was

divided into sections. Section A consists of the respondents’ bio-data such as age, sex,

qualifications, positions etc. In section B, a tabular format was adopted for questions related to

all the objectives of the study. It was structured in columns, rows, and each column represents

the observed response while the rows are the variables. The secondary means of data collection

was through the statistical estimate of revenue within the period of seven years (2005-2011).

This method was adopted in order to get the revenue of the Lagos State Government.

41

Of the 50 copies of questionnaires administered, only 44 copies were validly completed and

returned by respondents. The questionnaires were administered over the local governments of

Yaba, Ibeju Lekki, Kosofe, Ikeja and Amuwo Odofin with ten questionnaires per local

government.

4.2 PRESENTATION AND ANALYSIS OF DATA

The data gathered for the study were subject to descriptive and inferential statistics. The

descriptive statistics involves the use of simple percentage. The inferential statistics involves the

use of Spearman’s Rank which is adopted to show the direction of relationship between the

variables under study and to show the scale for the data which is interval.

Spearman’s Rank Correlation:

Rs = 1−6∑

i=1

n

d i2

n(n2−1)

Where ∑i=1

n

d i2=∑i=0

n

R ¿¿) – R (Y 1) 2

Where di = difference in each pair of ranks.

n= number of objects being ranked.

R is defined in such a way that when the ranks are in perfect agreement, R equals +1 and when

they are in perfect disagreement R equals -1.

X is the assumed independent variable.

Y is the assumed dependent variable.

4.21 ANALYSIS OF RESPONDENTS’ DATA

42

Table 1: Gender of the respondents

Gender Frequency Percentage

Valid

Percentage

Cumulative

Percentage

Male 24 54.5 54.5 54.5

Female 20 45.5 45.5 100.0

Total 44 100.0 100.0

Source: Field Survey, 2014

The table 1 above shows that 24 respondents are male and 20 respondents are female which

represents 54.5% and 45.5% respectively. The result shows that majority of the respondents are

male.

Table 2: Age of the respondents

Age Frequency Percentage

Valid

Percentage

Cumulative

Percentage

21-30 years 16 36.4 36.4 36.4

31-40 years 22 50.0 50.0 86.4

41-50 years 5 11.4 11.4 97.7

51-60 years 1 2.3 2.3 100.0

Total 44 100.0 100.0

Source: Field survey, 2014

The table 2 above shows that 16 respondents are between the age 21 and 30 which represents

36.4%, 22 respondents are between the age of 31 and 40 which represents 50%, 5 respondents

are between the age of 41 and 50 which represents 11.4% and 1 respondent is between the age

43

51 and 60 which represents 2.3%. The result shows that majority of the respondents are matured,

between the age of 31 and 40 years.

Table 3: Marital status of the respondents

Marital Status Frequency Percentage

Valid

Percentage

Cumulative

Percentage

Single 15 34.1 34.1 34.1

Married 29 65.9 65.9 100.0

Total 44 100.0 100.0

Source: Field survey, 2014

The table 3 above shows that 15 respondents are single which constitute 34.1% of the study

while 29 respondents are married which constitutes 65.9% of the study. This result shows more

married people amongst the respondents.

Table 4: Rank/ Position of the respondents

Rank/ Position Frequency Percentage

Valid

Percentage

Cumulative

Percentage

Top management

Middle

management

14

15

31.8

34.1

31.8

34.1

31.8

65.9

Junior management 15 34.1 34.1 100.0

Total 44 100.0 100.0

Source: Field survey, 2014

The table 4 above shows that 14 respondents are top management level which represents 31.8%

while 15 respondents are middle management which represents 34.1% of the study and finally,

44

14 respondents are low level management which represents another 34.1%. The result shows

that the respondents are evenly distributed among the three management levels.

Table 5: Educational qualification of the respondents

Education/Qualification Frequency Percentage

Valid

Percentage

Cumulative

Percentage

HND/DEGREE 37 84.1 84.1 84.1

MASTERS/PHD 4 9.1 9.1 93.2

PROFESSIONALS 3 6.8 6.8 100.0

Total 44 100.0 100.0

Source: Field survey, 2014

The table 5 shows that 37 respondents have HND/DEGREE which represents 84.1%, 4

respondents have MASTERS/PHD which represents 9.1% and 3 respondents have Professional

qualification which represents 6.8%. The result shows that more of the respondents are

HND/DEGREE holders.

Table 6: Cognate Working Experience

45

Working

Experience Frequency Percentage

Valid

Percentage

Cumulative

Percentage

1 year- 5 years 13 29.5 29.5 29.5

6 years-10 years 20 45.5 45.5 75.0

11 years-15 yrs. 9 20.5 20.5 95.5

16 years-20 yrs. 1 2.3 2.3 97.7

Above 20 years 1 2.3 2.3 100.0

Total 44 100.0 100.0

Source: Field survey, 2014.

Table 6 above shows that 13 respondents have between 1 – 5 years working experience which

represents 29.5%. 20 respondents have between 6 – 10 years working experience, which

represents 45.5%. 9 respondents have between 11 – 15 years working experience which

represents 20.5%. 1 respondent has between 16 – 20 years working experience which represents

2.3% and 1 respondent has above 20 years of working experience. The experiences gathered will

enable the respondents be a better judge for this study.

4.22 ANALYSIS ACCORDING TO RESEARCH QUESTIONS

Table 7: Lagos state government is doing enough to create awareness about the importance of

paying taxes

Description Frequency Percentage

Valid

Percentage

Cumulative

Percentage

A 10 22.7 22.7 22.7

SA 34 77.3 77.3 100.0

46

Total 44 100.0 100.0

Source: Field survey, 2014.

The table 7 above shows that 44 respondents agreed which represents 100.0%. With the above

response, one can conclude that Lagos state government is doing enough to create awareness

about the importance of paying taxes.

Table 8: The level of infrastructural development has encouraged more people to pay their

taxes.

Description Frequency Percentage Valid Percentage

Cumulative

Percentage

U 1 2.3 2.3 2.3

D 1 2.3 2.3 4.5

A 37 84.1 84.1 88.6

SA 5 11.4 11.4 100.0

Total 44 100.0 100.0

Source: Field survey, 2014.

The table 8 above shows that 1 respondent was undecided which represents 2.3%, 1 respondent

disagreed which represents 2.3% and 42 respondents agreed which represents 95.5%. This

47

response implies that the level of infrastructural development has encouraged more people to pay

their taxes.

Table 9: Tax enforcement laws in Lagos state are adequate.

Description Frequency Percentage

Valid

Percentage

Cumulative

Percentage

D 4 9.1 9.1 9.1

A 35 79.5 79.5 88.6

SA 5 11.4 11.4 100.0

Total 44 100.0 100.0

Source: Field survey, 2012.

The table 9 above shows that 4 respondents disagreed which represents 9.1% and 40 respondents

agreed which represents 90.9%. This implies that tax enforcement laws in Lagos state are

adequate.

48

Table 10: There would be more infrastructural development in Lagos state if citizens pay their

taxes regularly.

Description Frequency Percentage

Valid

Percentage

Cumulative

Percentage

U 1 2.3 2.3 2.3

SD 1 2.3 2.3 4.5

D 1 2.3 2.3 6.8

A 33 75.0 75.0 81.8

SA 8 18.2 18.2 100.0

Total 44 100.0 100.0

49

Source: Field survey, 2012.

The table 10 above shows that 1 respondent was undecided which represents 2.3%, 2

respondents disagreed which represents 4.6% and 41 respondents agreed which represents

93.2%. This response implies that there would be more infrastructural development in Lagos

state if people pay taxes adequately.

Table 11: The effect of revenue generation is rated on provision of social amenities.

Description Frequency Percentage

Valid

Percentage

Cumulative

Percentage

D 2 4.5 4.5 4.5

A 29 65.9 65.9 70.5

SA 13 29.5 29.5 100.0

Total 44 100.0 100.0

Source: Field survey, 2014.

The table 11 above shows that 2 respondents disagreed which represents 4.5% and 42

respondents agreed which represents 95.4%. This implies that the effect of revenue generation is

rated on the provision of social amenities.

50

Table 12: Non-Residents in Lagos state contribute to revenue generation

Description Frequency Percentage

Valid

Percentage

Cumulative

Percentage

A 16 36.4 36.4 36.4

SA 28 63.6 63.6 100.0

Total 44 100.0 100.0

Source: Field survey, 2014.

The table 12 above shows that 44 respondents agreed which represents 100.0%. This response

implies that non-residents in Lagos state also contribute to revenue generation.

Table 13: Lagos State is ahead of other states in the provision of basic infrastructures

Description Frequency Percentage

Valid

Percentage

Cumulative

Percentage

U 1 2.3 2.3 2.3

D 1 2.3 2.3 4.5

A 10 22.7 22.7 27.3

SA 32 72.7 72.7 100.0

Total 44 100.0 100.0

Source: Field survey, 2014.

51

The table 13 above shows that 1 respondent was undecided which represents 2.3%, 1 respondent

disagreed which represents 2.3% and 42 respondents agreed which represents 95.4%. This

response implies that Lagos state is ahead of other states in the provision of basic infrastructure.

Table 14: The infrastructural development of Lagos state is as a result of effective and efficient

tax administration.

Description Frequency Percentage

Valid

Percentage

Cumulative

Percentage

D 2 4.5 4.5 4.5

A 34 77.3 77.3 81.8

SA 8 18.2 18.2 100.0

Total 44 100.0 100.0

Source: Field survey, 2014.

The table 14 above shows that 2 respondents disagreed which represents 4.5% and 42

respondents agreed which represents 95.5%. This implies that the infrastructural development of

Lagos state is because of adequate revenue generation.

52

Table 15: Revenue generation agencies in Lagos state are efficient

Description Frequency Percentage

Valid

Percentage

Cumulative

Percentage

SD 1 2.3 2.3 2.3

A 38 86.4 86.4 88.6

SA 5 11.4 11.4 100.0

Total 44 100.0 100.0

Source: Field survey, 2014.

The table 15 above shows that 1 respondent disagreed which represents 2.3% and 43

respondents agreed which represents 97.8%. This response implies that revenue generation

agencies in Lagos state are efficient.

Table 16: There exists a mutual obligation between the government and its citizens

53

Descriptio

n Frequency Percentage

Valid

Percentage

Cumulative

Percentage

A 34 77.3 77.3 77.3

SA 10 22.7 22.7 100.0

Total 44 100.0 100.0

Source: Field survey, 2014.

The table 16 above shows that 44 respondents agreed which represents 100.0%. This implies that

citizens are aware that there is a mutual obligation between themselves and their government.

Table 17: The training of tax personnel has resulted in an effective tax administration

Description Frequency Percentage

Valid

Percentage

Cumulative

Percentage

D 2 4.5 4.5 4.5

A 22 50.0 50.0 54.5

SA 20 45.5 45.5 100.0

Total 44 100.0 100.0

Source: Field survey, 2014.

The table 17 above shows that 2 respondents disagreed which represents 4.5% and 42

respondents agreed which represents 95.5%. This response implies that the training of tax

personnel has resulted in an effective tax administration.

54

Table 18: Tax consultants increase the burden of tax on the citizens

Description Frequency Percentage

Valid

Percentage

Cumulative

Percentage

U 1 2.3 2.3 2.3

SD 1 2.3 2.3 4.5

D 2 4.5 4.5 9.1

A 20 45.5 45.5 54.5

SA 20 45.5 45.5 100.0

Total 44 100.0 100.0

Source: Field Survey, 2014.

The table 18 above shows that 1 respondent was undecided which represents 2.3%, 3

respondents disagreed which represents 6.8% and 40 respondents agreed which represents

93.3%. This response implies that the employment of tax consultants has increased the tax

burden on the citizens.

55

4.3 TEST OF HYPOTHESES

Having done the analysis of the responses received, the hypotheses stated in chapter one of this

study will be tested.

The hypotheses will be tested using the Spearman’s Rank correlation leading to the acceptance

or rejection of the null hypotheses.

4.31 TEST OF HYPOTHESIS ONE

H0: Effective and efficient tax administration has not increased Lagos state internally generated

revenue.

H1: Effective and efficient tax administration has increased Lagos state internally generated

revenue.

Nonparametric Correlation

Table 19 Correlations

Effective and efficient tax administration

Internally generated revenue.

Spearman's rho

Effective and efficient tax administration

correlation coefficient 1.000 .628**

sig. (2-tailed) . .000

N

44 44

Internally generated revenue.

correlation coefficient

.628** 1.000

56

sig. (2-tailed)

.000

N 44 44

** Correlation is significant at the 0.01 level (2-tailed).

Interpretation: rho = 0.628, N = 44 and P< 0.005 as shown on the table 4.4.1 above, we can

conclude that there is a positive relationship between hypothesis and accept the alternative

hypothesis and conclude that effective internal revenue generation leads to the development of

infrastructure.

4.32 TEST OF HYPOTHESIS TWO

H0: Increased revenue generation has not affected the economic well-being of Lagos state

citizens.

H1: Increased revenue generation has affected the economic well-being of Lagos state citizens.

Nonparametric Correlations

Table 20 Correlations

Increased revenue generation

Economic well-being of citizens.

Spearman's rho

Increased revenue generation

correlation coefficient 1.000 .717**

sig. (2-tailed) .000

N

44

44

Economic well-being of citizens.

correlation coefficient

.717** 1.000

57

sig. (2-tailed) .000

N

44

44

** Correlation is significant at the 0.01 level (2-tailed).

Interpretation: rho = 0.717, N = 44 and P< 0.005. As shown in the table above, we can conclude

that there is a positive relationship between increased revenue generation of the Lagos state

government and the economic wellbeing of the citizens in the state. Therefore, we reject the null

hypothesis, accept the alternative hypothesis, and conclude that the increase seen in the

internally generated revenue has resulted in positive wellbeing of the citizens of the state.

4.33 TEST OF HYPOTHESIS THREE

H0: Efficient and effective tax administration has not influenced infrastructural and economic

development in Lagos state.

H1: Efficient and effective tax administration has influenced infrastructural and economic

development in Lagos state.

Nonparametric Correlations

Table 21 Correlations

Effective and efficient tax administration

Infrastructural development

Spearman's rho

Effective and efficient tax administration

correlation coefficient 1.000 .837**

sig. (2-tailed) .000

N

44

44

Infrastructural development

correlation coefficient

.837**

1.000

58

sig. (2-tailed)

.000

N

44

44

** Correlation is significant at the 0.01 level (2-tailed).

Interpretation: rho = 0.837, N = 44 and P< 0.005. As shown on the table above, we can conclude

that there is a positive relationship between an effective and efficient tax administration and

increased infrastructural development. Therefore, we reject the null hypothesis and accept the

alternative hypothesis, concluding that the increase in infrastructural developments in Lagos

state is strongly attributable to increased revenue generation through effective and efficient tax

administration

59

CHAPTER FIVE

5.0 DISCUSSION OF FINDINGS, CONCLUSIONS AND RECOMMENDATIONS

5.1 INTRODUCTION

This chapter attempts to interpret and summarise the major findings of this research work based

on the tests carried out. The research questions at the beginning of this work are tested to

determine the degree and extent of reliability and validity of the findings from which

conclusions are drawn and recommendations are made.

5.2 DISCUSSION OF FINDINGS

The statistical analysis used in this study revealed that the effect of internal revenue generation

has led to major infrastructural development and provision of basic social amenities to the

citizens of Lagos state.

It was however observed that a fair number of non-residents who work in Lagos state add their

quota to revenue generation. The researcher also discovered that the infrastructural development

in Lagos state is because of adequate generated revenue and that revenue generation supports the

government in fulfilling its duties of securing lives and property and advancing the economic

wellbeing of the citizens of the state.

60

Furthermore, it was observed that Lagos state is ahead of other states in the provision of basic

infrastructures; this was largely attributed to an efficient and effective tax administration in place

in Lagos state amidst enabling laws and autonomy of tax authorities generating adequate internal

revenue.

However, the study brought to light the role played by tax consultants, with results suggesting

that the Lagos State Internal Revenue Service (LIRS) can be equipped to generate adequate

revenue by training of her staff and thus has no use for the tax consultants. This is seen in results

suggesting that the citizens perceive that the tax burden is increased with the use of tax

consultants.

Findings from this study buttress the fiscal federalism theory adopted in this work. The

DECENTRALISATION THEOREM suggests that state and local governments, being closer

to the people, will be more responsive to the particular preferences of their constituencies and

will be able to find new and better ways to provide these services. This is evident in this research

work, as the Lagos State Government (LASG) has been able to respond to the needs of its

citizens. The CLUB THEOREM is also relevant here as on the one hand, the gains to an

increased size of the region (or the "club") arise from the larger number of people, over which

the average cost of service provision can be spread. On the other hand, efficiency losses from

increased size of regions arise from congestion. That is, when the number of people with whom

the public good must be shared increases, this reduces the quality of the good. In the case of

Lagos state, although there is a large population from which to generate revenue, the impact of

the increased revenue is not readily felt across the state as a number of people still disagree that

the government has done enough.

The efficiency and effectiveness of the tax administration in Lagos state is thus seen as a major

reason behind the increased internal revenue generation of the state and the state in fulfilling its

61

obligation to its citizens has attempted to impact on their lives with positive feedback from the

citizenry.

5.3 CONCLUSIONS

Given the very low starting level of Internally Generated Revenue (IGR) in 1999, the continuous

improvement in revenue collection since the return to democratic governance is not a sufficient

proof of the efficiency of the revenue administration arrangements recently put in place. There

remains a significant scope to improve the performance of tax revenue. For example, the State of

Lagos does not draw much from its property tax base. While property taxes account for a

substantial share of municipal budgets around the world ranging from an average of 20 percent

in India, over 50 percent in many Canadian cities, and 70 percent in many cities in USA,

property tax rates in Lagos have been historically low. In 2008, actual collection from property

tax was 2 percent of Internally Generated Revenue against the estimated potential of over 15

percent (World Bank Review 2010). Results of property tax reforms, initiated in 2001 have

remained elusive, at least in part due to its poor implementation and administration. However,

the Lagos State Government (LASG) is committed to re-launch its original plan to improve

property tax collection, as the potential yield from this revenue source remains substantial in the

medium term.

Although IGR has increased, it has also increased costs to entrepreneurs that still face a very

challenging overall environment for doing business in Lagos state. The sharp increases in IGR

achieved during the last decade exploited some lower and more visible taxpayers, and sustaining

this pace of growth has proved to be a challenge (World Bank Review, 2010).

Furthermore, tax collection costs remain high. In spite of the significant reforms undertaken by

the State Government, the Electronic Banking System of Revenue Cycle Management (EBS-

RCM) has raised questions regarding the level of its operating costs. The consultancy services

62

cost about 10 percent of total IGR collected. This represents a higher cost of collection than is

typically found in modern revenue administrations, where costs of collection of less than 3

percent are common (World Bank Review, 2014). The percentage currently charged should be

renegotiated by the government downward, especially given that revenues are likely to continue

to grow in the medium term. Addressing the high collection costs will be critical to sustaining

gains in revenue collection. This will also require building the capacity of the Lagos State Board

of Internal Revenue to enable take-over of a number of functions currently performed by the

consultants.

While Lagos State reduced its poverty headcount to 23% by 2010 (World Bank Review, 2014),

the lowest of any Nigerian State, this still implies that some 5 million Lagosians live below the

poverty line. Thus, the number of the poor in Lagos State are still high, and new poor migrants

continue to pour into the city. The widening of the tax net may affect some poorer Lagosians.

The Lagos State Government has prioritized the development of a culture of tax compliance that

includes bringing smaller taxpayers into the tax net. While this policy represents a continuation

of Lagos State’s program to solidify a culture of tax compliance on its territory, which has

generally brought positive dividends to poorer Lagosians, there is a possibility of a one-off

negative impact on some smaller taxpayers who currently work entirely in the informal sector.

5.4 RECOMMENDATIONS

Based on the study, the following actions are recommended:

i. Lagos state tax officials should be properly trained and equipped to take over the job of

the tax consultants. This would help to reduce the overall cost of tax collection and in

turn reduce the burden on tax payers.

ii. There should be clear-cut policies for tax administration to avoid duplicity of taxes

between the state government and the local government i.e double taxation.

63

iii. There should be wide spread public awareness on the tax administration process. Most of

the citizens are in the dark about the process. The tax administration process should be

made more transparent through enlightenment campaigns.

iv. The tax net should be broadened to include the informal sector of the Lagos economy.

This will involve recruiting of tax officials that are close to the people and are easuily

relatable.

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APPENDIX

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