PROBLEMS AND PROSPECTS OF LOCAL GOVERNMENT FINANCE IN NIGERIA (A COMPARATIVE CASE STUDY OF ENUGU NORTH AND ENUGU SOUTH LOCAL GOVERNMENT AREA)
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This research study is based on the problems and prospects of local government finance in Nigeria; it is a comparatively study of Enugu North and Enugu South Local Government of Enugu State. The study is divided into give chapters, each focusing on particular aspect of the subject.
Chapter one covers the general introduction to the subject. Statement of problems, statement of objectives, test of hypothesis, significance of study, limitation and scope of the study, and finally the definition of operational terms used in this study.
In the second chapter, relevant literature on the subject are reviewed. The review covers areas like: functions of local government, statutory basis of local government finance, local government expenditure patter and management and control of local government finance.
Chapter three deals with the research methodology used by the researcher for the study.
In chapter four, it concerns itself with the analysis and presentation of relevant data collected for the research work.
Finally, in chapter five, it deals with summary of findings, recommendations and conclusions.
Here, the researcher explores the various problems of local government finance and made suggestions with respect to ways improving the existing revenue sources and brings to light potential sources of revenue available to the local governments.
A local government is the third tier of government in Nigeria. Like any level of government, it has administrative structure, statutory assigned functions, social commitment and financial arrangement necessary for it to maintain itself and perform its statutory function to its citizens.
Local Government Authority in Nigeria was legally recognized for the first time, as the third tier of level of government by the 1979. Constitution of the Federal Republic of Nigeria; section 7 (1) and decree N0. 12, the constitution of the Federal Republic of Nigeria, 1989 that spells its functions. Since 1979, there has been a tremendous growth in local government expenditure in line with greater emphasis on grassroots participation. For instance, in 1992 while complete political, administrative and financial autonomy was granted to the local government from state control, its responsibility was enlarged. In addition to the functions assigned to it by the constitution the local government is now (with effect from 1992) directly responsible for primary and adult education, primary health care and rural water supply. Faced with these increased responsibilities and the enormous expenditure associated with them, it is pertinent that the local government expands its sources of revenue beyond the present level.
An action in this direction is necessary, as it would enable the local government to discharge its current functions and bring socio-economic development to the local populace.
Before now, the local government relied heavily on grants from the state and federal government relied heavily on grants from the federation account 20% in addition to a percentage of the internally generated funds of the state.
Before now the amount granted by the local government was very small. In the face of the complete independence now enjoyed by the local government. It is statutory required that it relies more on funds generated internally for the performance of its functions.
This being the case, government grants and statutory allocations are only supplementary sources of revenue to the local governments. For the local government to be self-sustaining financially, without reducing the level and quality of its services to the people, it is important that it reaches out for potential internal revenue sources which would supplement existing ones. This also implies that existing sources be fully exploited and more carefully managed.
Sources: Federal Republic of Nigeria; Constitution of Federal Republic of Nigeria (1979) fourth schedule part p section 7 (1); decree No 12 of 1989 official gazette, No. 29. Babangida, I.B. Watershed on our National evolution; 1992 Budget Address to the National on January 1, 1992.
1.1 STATEMENT OF PROBLEMS
One of the major problems confronting the Local Government in Nigeria has been identified as that of its inability to raise funds to finance its expenditure commitments and achieve enhanced grass root development. This problem facing the local government could be attributed to the following factors:
- Over dependence of the local government on funds from state and federal government which comes in the form of statutory allocation or giant or aid. This problem of finance has remained with local government. By their nature, such external funds are provided to supplement the internal generated fund of the local government. More so regardless of the amounts transferred or generated by the local government through this means, they often arrive late (that is they are paid in areas) towards the end of the fiscal year to which they are related. This financial arrangement makes it difficult for the local government to be able to plan, coordinate and better control its financial engagements.
- Inability of the local government to utilize all the internally revenue generating opportunities. This problem results from the financial relationship, which exists between the local government and the higher levels of governments. The local government tends to under utilize its numerous internal sources of funds because of its heavy dependence on statutory allocation and grants from the state and federal governments. The inability of the local government to exploit all the available internal revenue sources augment its overall financial base has made it increasingly difficult for it to generate enough finds to match its expenditure estimates.
- Improper planning, management and control of available funds. The problems of inadequate finding sometimes emanates from the inability of the local government to properly utilize the funds at its disposal due to poor financial planning.
- OBJECTIVE OF THE STUDY
Finance is the bedrock of every organization in any economy. It is a crucial pre-requisite which enables an organization, either private or public to maintain itself and effectively meet its commitments to individuals and groups who consume its output of goods and services. It is therefore, the intended objective of this study to do the following: –
- To examine the present statutory functions of the local governments in Nigeria and determine the extent to which it is performing these functions with the resources available at its disposal.
- To examine the existing financial arrangement relevant to the local government with reference to their various sources of revenue.
- To evaluate the expenditure patter of the local government
- To examine the various instrument of finance
- To examine the various constraints of local governments finances and ascertains their bearing on the financial autonomy of the local government.
- To examine the prospects of improving existing sources of local government finance and,
- To uncover potential internal revenue sources for the local government.
- SIGNIFICANCE OF STUDY
Given the present financial crisis facing the local government in Nigeria, and the recent financial autonomy granted to it, the need for a study of the problems becomes imperative. The study critically examines the problems facing existing revenue sources of the local government and appraises potential revenue sources, which could be used to expand the overall revenue base of the local government. It is thus significant because it emphasizes the need for the local government to be self-dependent financially by fully availing itself of available but unexplored internal revenue sources which could supplement existing ones.
Finally, this study is intellectually stimulating as its introduces a new dimension and direction of financial policy of local government administration, researchers, local government administrators, particularly those who are involved in financial planning and management and staff of the revenue unit of the Treasury Depart of the Treasury Department of Local Government Council will also find this research work valuable.
- STATEMENT OF HYPOTHESIS
The hypothesis upon which the study is based are:
H0: That the local government funds are sufficient to finance the expenditure, projects for which they are made.
Hi: That the local government funds are not sufficient to finance the expenditure, projects for which they are made.
H0: Local government has not been employing loan financing in the funding of its expenditure projects.
H0: Local government has been employing loan financing in the funding of its expenditure projects.
- SCOPE AND LIMITATION OF STUDY
Local government finance is a very wide area of study. Therefore, it is not the intention of the researcher to make an all embracing study of the topic in this research work. This study confines itself to the evaluation of the various revenue sources and expenditure patter of the local government examination of the problems associated with them and the prospects for improving them and the prospects for improving them. Since it is not possible for a research project of this nature to delve into a study of the entire local government in Nigeria individually. This researcher limits her work to information gathered from the two local government under study. During the researcher work, a number of constraints were encountered. These placed a limitation on the adequacy or otherwise of the information at the researcher’s disposal for the purpose of this study. The following limitations are worthy of note:-
- Finance:- This research was conducted within the limits of the financial resources of the researcher for instance in collecting relevant data and other necessary material in conducting interviews and in the distribution of questionnaires, the research sample was limited to a number which through representative of the population was within the financial resources available to the researcher.
- Time factor: Time was a major constraining factor. This was obvious since the research work had to be completed within a specified period of time in addition to other academic matters which the researcher could not dispense with during the period. Time and financial problem made it practically difficult for the researcher to repeatedly follow non-respondents and the not at homes in the course of questionnaire distribution and collection and interviews purposes of the present study.
- Lack of centrally located statistical data
At both local government under study and other local government council’s visited, necessary statistical data could not be obtained in a particular location. The researcher gathered was the recent creation of new local government which affected not only the local government council visited but also others were questionnaires were served. Thus while some relevant files reports were collected from existing local government others were obtained from the newly ones which are some distance away from the headquarters of existing ones. This coasted additional time and money.
- Bureaucracy: Another major problem encountered was that of bureaucracy. To obtain the relevant information needs a lot of forms to be filled on a number of top local government officials and to be met. The greatest difficulty was encountered in the process of obtaining the revenue and expenditure extracts and other quantities information’s used for this research work.
- DEFINITION OF TERMS
1.6.1 LOCAL GOVERNMENT:
It is the third tier of government. “It is that level of government which is organized as close as possible to the people at the grass root and vested with statutory powers to perform certain function both inherent and ascribed, confirming its activities and authority within a particular distinct or neigbourhood and subject to the control of the central government.
1.6.2 FINANCE: Finance refers to the generation, control and utilization of available funds in running an organization, whether private or public co-operation.
1.6.3 FUNDS: Fund is defined as “a separate fiscal and accounting unit in which resources are held, governed, by special regulation, segregated from other funds and established for specified purpose on which the resources so held any be used”
1.6.4 REVENUE: Revenue refers to all those monies, cash and otherwise received by way of statutory allocation, grants, subvention from higher levels of government, taxes, rates licenses, fees, royalties, loans and charges which enables the government to meet its day to day expense and its capital expenditure programmes.
1.6.5 EXPENDITURE: It involves the outflow of money expenditure refers to all the activities/services performed and rendered by the government with available resources.
1.6.6 RECURRENT EXPENDITURE: Recurrent expenditure is defined as those expenditures, which are usually re-occurring within a fiscal year. They are used to maintain existing labour and capital resources.
1.6.7 CAPITAL EXPENDITURE: Capital expenditure describes that expenditure on some objects of lasting value ever though the value may diminish in the course of time and use.
1.6.8 BUDGET: A budget is a formal plan expressing a chosen course of action in quantitative terms and usually in monetary terms. It shows planned revenue form all sources and estimates of expenditure for the coming fiscal year.
1.6.9 ESTIMATE: An estimate is a proposed budget, which is yet to be approved. It is a statement of planned revenue and expenditure of the government for the coming year. The estimate, like the budget is usually expressed in monetary units.
1.6.10 REVENUE ESTIMATE: A revenue estimate is that aspect revenue from all sources of the government for the coming fiscal year.
1.6.11 RECURRENT EXPENDITURE ESTIMATE: This aspect of the estimate outlines in details form, the expected recurrent expenditure of the government for the next fiscal year.
1.6.12 CAPITAL EXPENDITURE ESTIMATE: The capital expenditure estimate deals with all the expected capital expenditure project of the government for the coming fiscal year.Local Government Finance
1.6.13 REVENUE ABSTRACT: This is a record, which shows at a glance, in a summary from, all the revenue receipts head by head, and subhead-by-subhead that accrues to the local government in a particular financial year.Local Government Finance
CURRENT ISSUE ON TAXATION
Vat is one form of sales tax, like every other type of sales tax, it is a single tax on affected goods or services. Vat is a multi stage tax collection strategy.Local Government Finance
Under Vat, tax is levied and collected at every stage in the production and sale of affected commodities. However, the tax levied and collected at each stage is not based on the gross value but on the additional value gained by the commodity at that stage.
Vat is collected by the state government on behalf of the federal government. Internal revenue collected Vat on behalf of inland revenue. The federal government shares the amount collected to federal, state and local government. The local government share of Vat is monitored by the federal government on a specific project of the local government.
- Ya Adua Shehu “ Forward to Guideline on Local Government Reform “P. 15.Local Government Finance
- Umeh J.A. “Property Rating as a source of Financing New Local Government in Nigeria. An Article in Tropical Environmental Published by the Faculty of Environment Studies, University of Nigeria, Enugu Campus (1980).
- 8 Lloyel’s Morey et al; Fundamentals of Government Accounting (London; Chapman and Hall Ltd, 1951 P. 37).
9 Egomnwa, Agharese J.; “Principles and Practices of Local Government in Nigeria (Benin City; S.M.O. Aka of brother 1985) P.2.Local Government Finance.