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THE IMPACT OF INTERNALLY GENERATED REVENUE (IGR) ON OUTPUT IN KWARA STATE (1988-2017)
1.1 Background to the Study
In recent decades, internally generated revenue has remained the main focus of all States and Local Government Areas in Nigeria. Indeed, this is informed by the important role it played in the development of the society. No system or rule can be effectively functional whether foreign or domestic unless it enjoys an appreciable level of financial buoyancy on a sustainable basis. Due to the issue ofinadequate of finance that has been the major problem which both State and Local Governments in Nigeria have been grappling with in recent times, it is a matter of necessity that other means of generating income is exploited. However, many of them have made attempts to exploit economic potentials of their areas which are in abundance, to finance their
activities and enhance their development through other means to generate more revenue. It is curious to note that such efforts are yet to yield desired results as the efforts are offset by problems that impede effective and efficient revenue generation.
Every government needs funds to finance its activities. But the sources of such revenues can hardly be exhaustive. This is so because an efficient Internal Revenue Generation plays a crucial role in the developmental drive of governments at any level. It is more pronounced in developing or transitional economies. Over dependent on the crude oil as a sole means of generating funds has subjected all tiers of governments in Nigeria to serious financial stress as statutory allocations have been fluctuating at abysmal levels. (Adenuga&Ogechi 2013).
The need for state governments to revisit the optimality and adequacy of their revenue generation drive from internal sources within the state has therefore become a matter of extreme urgency
and importance. For example, Taxation which is a necessary ingredient for civilization, in any given society it helps in redistribution of wealth. ―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 chieftain and later to organized governments‖. (Ojo, 2003).
For any State to achieve meaningful economic development, it requires effective and efficient revenue management, budgetary control and other components of public sector. Revenue generation and management in most emerging economies are for social, economic development and provision of infrastructure. These are made possible through implementation of all possible means of revenue generation within the State, since revenue is considered as the oil in the wheel of progress of any economic setting such as States and LGA in Nigeria.
However, state governments generate their revenues from numbers of sources which include statutory allocations, corporate donations, foreign aids, and of course internally generated revenue (IGR). IGR is one of the sources that have not being fully explored let alone exploited in Nigeria.
This study focuses on the extent to which IGR contributes to the total income of States and LGA using annual time series for the period 1988 to 2017, using Kwara State as a case study. According to the Kwara State‘s annual financial report (2016), the sources of revenue available to Kwara State include local licenses, fees, fines, earnings from commercial undertakings, market rates, investment income, aid and grants, rent on government property, retained earnings of parastatals, interest payment and dividend, loans, taxes. Other sources include statutory allocations from federation account, value added tax (VAT), drawings from excess crude account.
IGR also serves as a tool for social engineering, for example revenue is the blood that flows through the veins of every viable, efficient and successful government, for Government institution to be viable, reliable and efficiently sustainable, there is need for strong and efficient bedrock of internally generated revenue that could prevent the government from the swirl of macro responsibilities shocks in terms of socio, political and economic spending. in Nigeria, Lagos state had been one of the IGR dependent sustainable state with N268.2billion IGR in 2015 and projected over N404billion IGR in 2016 close to N682.7billion in 2015 revenue generation of the entire country, as a result of which Lagos state is less ‗pressured‘ However, the IGR generated in Kwara State had been on a decline with N12billion, N7billion in 2014 and 2015 respectively. With N22billion domestic debt and projected of N60billion in 2016 IGR and N128billion fiscal year budget 2016. Thus, there is need to analyze each source of IGR and suggest to the state the probate solution. Inadequate IGR serves as hindrance for State Government to keep the society moving, because as government gets more revenue and commission more projects, more money is put in circulation, more employment opportunities arise and more business opportunities are created which impact positively on living condition of the Populace in the State.
1.2 Statement of the Research Problem.
Most state governments in Nigeria do no longer perform their civic 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. Kwara State, like many other states in Nigeria, relies
mostly on Federal Government Allocation for her survival. The pitiable state of Nigeria economy as a result of free falling in the price of crude oil has resulted to shortfall in the revenue generated by the federal government from the oil sector. This has seriously affected the federal allocation, to not only Kwara State, but all the states of the federation.
According to the Kwara State annual financial report (2016), revealed that, the Kwara State IGR dropped from N12 billion in 2014 to N7 billion in 2015, which is 36.8% reduction; and federal government allocation to Kwara State fell from N3.4billion in 2014 on monthly basis to N1.4billion in 2015 on monthly basis being about N24billion in the shortfall which accounted for 58.8% decrease. This shortfall has not made the government of the state to pay the salaries of the workers promptly, incessant strike by government owned schools, non- payment of pensioners most of which stand as backdrops in the proper, effective and reasonable implementation of government policy talk less of execution any project within the state. There is need therefore to source for more revenue to augments the federal base allocation called for investigating into more ways of sourcing for IGR within the state.
Adesoji, Adenugba and Chike(2013) in their studies on the effect of IGR on infrastructural development in Lagos employed a survey design while Edogbanya and Ja‘afaru(2013) studied the revenue generation in Kogi state and employed descriptive statictics. Similarly, Nnanseh and Akpan(2013); Oseni and Olusola(2013); Asimiyu and Uyikizito(2014); Matthew(2014); as well as Dagwom(2017) employed descriptive statistics in establishing the impact of IGR on infrastructural development and growth. Therefore, to the best knowledge of the researcher, none of the previous studies have been able to use secondary data in analyzing the subject matter. Hence, this study will contribute to knowledge by making use of secondary data analysis in examining the impact of internally generated revenue on output in kwara state.
This research work is therefore to examine the impact of internally generated revenue on output of Kwara State from (1988-2017). Based on the above stated issues, it has become necessary to conduct an analysis on revenue generation in Kwara State.
1. 3 Research Questions:
It is against the backdrop of the afore-mentioned problem that this study sort to answer the following questions:
- What is the revenue –expenditure gap in Kwara State?
- What is the impact of internally generated revenue on output in Kwara State?
- What is the impact of revenue –expenditure gap on output in Kwara State?
1.4 Research Objectives
Broadly, the objective of this study is to examine the impact of internally generated revenue on economic output in Kwara State of Nigeria. Specifically, this study will achieve the following objectives:
- To analyzethe revenue – expenditure gap in Kwara State
- To examine the impact of internally generated revenue on output in Kwara State
- To determine the impact of revenue – expenditure gap on output in Kwara State.
1.5 Research Hypothesis
Hypotheses are assumption on which a researcher bases his investigation and on the basis of which a confirmation of the assumed conditions are tested and validated. The hypothesis on which this research study is based stated in null form as follows:
H0: There is significant impact of internally generated revenue (IGR) on output in Kwara State
H1: There is no significant impact of internally generated revenue (IGR) on output in Kwara
1.6 Justification of the Study.
The issues of internally generated revenues on output are crucial to every state in the nation. IGR is the means of expenditure, without which expenditure cannot be made and output is the primary goal of every economy. While there is also growing studies on IGR. However, empirical studies in this Kwara State remain sparse in the state. For instance Kumar (2010) and Aweitey (2003) employed descriptive analysis with the conclusion that revenue generation is the life blood activity of any state.
The study is also important because internally generated revenues affect the individual and the government at large. It will also provide an econometric basis upon which to examine the impact of IGR revenues on output in State. Finally, the finding from the study will guide the government to focus on how appropriate internally generated revenues will be used in creating wealth for the state in order to achieve desirable output.
This study differs from most of the existing literature on the account that the study would examine the impact of IGR on output of Kwara State to the recent period. This study would
therefore contribute to the body of literature on the crucial role revenue generation plays in developmental drive of Kwara State.
1.7 Scope and Limitations of Study
The study would examine the impact of internally generated revenue on outputs for the period of (1988-2017) in Kwara State. The research is intended to be carried out using secondary data. Secondary data will be obtained from the annual reports and statement of account from the office of Accountant General of Kwara State, Ministry of planning and Economic development Ilorin and Central Bank of Nigeria Statistical Bulletin.
1.8 Organization of the Study
The study is organized into five chapters. Chapter one consists of the background to the study, statement of problems, research questions, objectives of the study, the hypothesis testing, justification of the study, the scope and limitation of the study. Chapter two covers definition of terms that are related to the study, Review of related literatures both theoretical and empirical studies. Chapter three focus on Research methodology which includes sources of data, model specification /estimation and various diagnostic tests. Chapter four is the data presentation and analysis of result based on statistical techniques that was use. Finally chapter five is the summary of the major findings, conclusion and recommendations.