Background of the study
Revenue generation in Nigeria local governments is principally derived from tax. Tax is a compulsory levy imposed by government on individuals and companies for the various legitimate function of the state (Olaoye, 2008). Tax is a necessary ingredient for civilization. The history of man has shown that man has to pay tax in one form or the other that is either in cash or in kind, initially to his chieain and later on a form of organized government (Ojo, 2003). No system or rules can be effective whether foreign or nature unless it enjoys some measures of financial independence. Local governments in Nigeria have developed over a number of years. Historically, the development of direct taxation in local government in Nigeria can be traced the British pre-colonial period Under this period, community taxes were levied on communities (Rabiu,2004) recently the revenue that accrues to local government is derived from two broad sources, viz the external sources and the internal source An effective Local Government system rests majorly on the availability of human and material resources which the nation could mobilize and harness for local governments development. In 1976, the Federal Military Government then issued guidelines on local governments reforms. The reforms which gave recognition to local governments as the third tier of government whereby government activities at the local level were taken care of. In 1988, another reform of local government was established. This gave a substantial and unprecedented reform of autonomy to the local governments in the country.
With this autonomy, greater responsibilities devolved on the local government therefore, became a common knowledge that most of the local government are finding it difficult to cope with the present level of responsibilities. Most state governments in Nigeria do no longer perform their responsibilities simply because of poor finances arises from internally generated revenue. The bad financial situation is further aggravated by the prevailing inflationary situation in this country which erodes the value of funds available to render essential social services to the people. Economic growth is highly associated with fund, much revenue is needed to plan, execute and maintain infrastructures and facilities at the state government level. They need revenue generated for such developmental projects like construction of accessible roads, building of public schools, health care centers, construction of bridges among others are sources generated from taxes, royalties, haulages, fines and grants from states, national and international governments. Thus, state government cannot embark, execute and possibly carryout the maintenance of these projects and other responsibilities without adequate revenue generation.
1.2 Statement of the problem
The state government is faced with myriads of problems ranging from corruption and embezzlement, poor financing, mismanagement of funds to poor leadership. This has deterred the development of state government in Nigeria. The major issues are; what has contributed to the non-performance; is it because of total dependence on federal statutory allocation? Is it as a result of poor internally generated revenue drive? Is it because of ineffective utilization of available scarce resources or mismanagement by public office holder? Among others, state government has always been over dependent on the statutory allocation thereby causing the state government to under perform which includes; Dilapidated infrastructural facilities Unavailability of social services to rural populace. Underdevelopment of local communities. Based on the above stated problems, it has become necessary to conduct an analysis on revenue generation in Lagos State. Significance of the study From the outlook, there is need for the state government to improve their performance.
However, the research is significantly considering the closeness of state government to the grassroots’ people and the need to utilize substantial revenue for its various sources in addition to federal statutory allocation for developmental purpose. The study will help to identifying some means of generating revenue that has been neglected over years. It will also be beneficial to the grassroots because improved revenue generation means improved standard of living in form of provision of social amenities such as road, hospital, park, drinkable water, rural electrification etc. The study will be educative as it will be a reference point for researchers.
1.4 Objectives of the study
The broad objective of this research is to evaluate the effect of internally generated revenue on the economic growth of Lagos State.The specific objectives are; To examine the relationship between internally generated revenue and economic growth in Lagos State. To ascertain the extent which value added tax has contributed to government developmental effort. To evaluate the extent to which internally generated revenue has contributed to the economic growth in Lagos State and it various sources.
1.5 Research questions
1. Is there a significant relationship between internally generated revenue and economic growth in Lagos State?2. Does Allocation from Value Added Tax (VAT) significantly contribute to government developmental effort?3. Is there a significant relationship between statutory allocation to the state government and economic growth in Lagos State?