Economics Project Topics

The Impediment of Revenue Generation

The Impediment of Revenue Generation

The Impediment of Revenue Generation

Chapter One

Objectives of the Study

The broad objective of this research is to evaluate the impediments of revenue generation at the grassroots government in relation to development.

The specific objectives are:

  1. To examine the relationship between the statutory allocation to the local government and internally generated revenue (IGR) of the local government.
  2. To ascertain the extent to which the restriction of local government fiscal autonomy has affected the effective functioning of the local government.
  • To ascertain factors responsible for ineffective implementation of local government projects.
  1. To evaluate the reasons for low internally generated revenue and how it has contributed negatively to local government developmental efforts.




There is a broad and diverse literature on the concept of local government and the challenges of revenue generation. A number of relevant conclusions can be drawn from the review of related literature. Discussion of relevant literatures and scholarly views will be presented from a general view of the concept of local government, revenue generation and developmental challenges of the local government.

Theoretical Framework

Ola and Tonwe(2009) stated that in attempting to formulate theories about the performance of local governments, one can evolve a well distilled list of criteria of what local governments ought to be functionally concerned with and what it theoretically ought to be engaged in.

There are three major theories of local government. These are the democratic participatory, efficient-services, and developmental schools of thought.

Democratic participatory School

The democratic participatory school of thought holds the view that local governments exist solely for the purpose of promoting democracy and participation at the grassroots level thereby bringing government nearer to the people (Adamolekun, et al 1988).

This theory holds that local governments function to bring about democracy and to afford opportunities for political participation to the citizens as well as to educate and socialize them politically. This viewpoint has been corroborated by Keith-Lucas, David Bulfer and William Machenzei. This school asserts that the local government is a prime element of democracy and demonstrates the intrinsic values of democracy, insisting that, irrespective of the service it offers, the local government offer the closest thing to the widespread consultation and participation. A very important part of this democratic role is the opportunity it creates for political activity and social interaction. The crux of this theory is that local government must continue to uphold democracy through the provision of political education, participation and political socialization for its citizens.

Efficiency Services School

The opinion of this theory is that the main purpose of the local government is to provide services to the local people. The efficiency services theorists believe that the local government occupies the best position for the efficient performance of certain functions. This is made possible because of the nearness of the council to the people and because of the smallness of the population.

According to this school, the local government is to be more efficient than the state in providing these services since it is closer to the people (Livingstone, 2008).

The Developmental School

The developmental school emphasizes how local governments in the developing world can be an effective agent of a better life, an improved means of living, socially and economically and a means to have a better share in the national wealth. The proponents of this school contend that far more than in developed western countries, the local government in developing nations can and should have the function of helping to reduce the congestion at the centre.

If the local government is well articulated to stimulate initiatives, it can more easily identify available local skills, interests and capitalize on developing them (Olojede and Afegbua, 2011).





Revenue Allocation in Nigeria has been a major issue that has generated controversy in all political administration and regime in the country. Whether military regime or civilian/democratic government, the country have had to grapple with unending revenue allocation formulas of which each brings its own inherent challenges. Irrespective of the numerous revenue commissions that have emerged from prior to independence down till the fourth republic, there have been no single revenue allocation formula introduced by these commissions which have become fully accepted by the citizenry for the allocation of the nation’s financial resources. In the report of the political bureau (1987:169), thirteen different attempts have been made in devising an acceptable revenue allocation formula, each of which is more remembered for the controversies it generated than issues it settled.

Revenue allocation process in Nigeria

The first resource allocation and control commission in Nigeria was the Sydney Phillipson’s Commission of 1946 which was headed by the Financial Secretary to Colonial Government in Nigeria. As part of the effort to address the issue of resource/revenue allocation, Phillipson adopted the principle of derivation by which a region received according to the proportion of the resources the region produced. This led to criticism as the principle favoured some states at the detriment of others. This criticism led to setting up of another commission called Hicks Commission which introduced the principles of (1) Needs (2) Independence (3) National Interest (4) Special Grants.

After the colonial rule, the question of resource allocation continues to emerge. The Dina’s commission in 1962 introduced another formula whereby the north was given 42%, the east 30%, West 20% and mid-west 8%. As at 1979, under the civilian government of Alhaji Shehu Shagari, the Okigbo’s commission was established and having done a thorough review of past allocations, he came up with 58.5% of resource allocation to the central government, 31.5% to the state government and local governments 10%. What we have in place as an arrangement of resource control/allocation today in Nigeria as codified in the 1999 Federal Republic constitution section (162-168) are principles of (1) Population (2) Equality of States (3) Internally Generated Revenue (4) Landmass (5) Terrain (6) Population Density (7) The principle of derivation.




Major issues on local government and revenue allocation with special focus on Abeokuta-North Local Government being our case study will be elaborately examined in this chapter.




This study identified and examined various sources of revenue generation as well as the impediments of revenue generation in Nigeria. The study revealed that local government in Nigeria are confronted with several problems which include corruption on the part of revenue collectors, lack of bye-laws on revenue tariff, farming out of revenue base on political patronage and so on.

It has become obvious that Corruption is the major issue in the developmental study of the local government councils in Nigeria. It is therefore believed that the local governments could do better in internally generated revenue if council officials honestly and aggressively do their job. But more often, these officials are involved in corrupt practices by short changing the council either by printing their own personal receipt booklets or misappropriate council funds.

The fact that such culprits are not decisively dealt with accordance with extant rules and regulations have encourage other to be the same line of corruption, resulting in the ever more dwindling internal revenue profile of the council.


The following recommendations are proffered for the amelioration of the impediments of revenue generation in local government administration in Nigeria:

  1. Revenue collectors should be checked on regular basis by the Internal Auditor of the council in consonance with the provisions of financial regulation and any one found guilty of corrupt practices should be punished accordingly.
  2. The use of council staff should be encouraged. Enough staff should therefore be employed by the council to man the various revenue units of local government.
  3. Adequate legislation on revenue tariff is very necessary. Therefore, the council should ensure that its legislative body makes an up-to-date tariff to forestall instances of use of discretion by revenue collectors.
  4. Revenue Agents should be abrogated and replaced with local governments employed staff.
  5. In order to avoid tax ovation by some people, local government councils should encourage their indigene by providing them with adequate amenities. This will no doubt spur them to paying their taxes and levies without complaint.


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