Management of Internally Generated Revenue in Osun State Local Government. A Case Study of Ife South Local Government

CHAPTER ONE 
INTRODUCTION
1.1 Background to the Book
Finance is a daily exercise. Everyone is deeply involved in it except the dead. It 
connotes a medium of exchange. Internally Generated Revenue, connotes the funds 
which Local government, State and Federal government was able to generate to finance 
their major functions, that is  functions for which they are established. At the local 
government level Internally Generated Revenue can also be defined as all income 
generated internally by the government from within the council areas on daily, monthly, 
quarterly or yearly basis.
According to the provision of section 160 (i) and (ii) of 1989 constitution of 
Federal Republic of Nigeria, the federal Government has been the major financier of 
local governments with 20% of it’s recurrent expenditure coming to the local 
government, while 10% of the Internally Generated Revenue of the State government is 
also expected to accrue to the local government. Local Government are also expected to 
generate funds internally in form of market tax, community tax, liquor/beer tax, tenement 
rates, sign-post tax, motor park rates, marriage rate, bicycle license and sales tax among 
others.
Other sources of Internally Generated Revenue in the Local Government include 
fees from hawkers, and squatters, local sales, lotteries, business ventures, transportation 
business, loans, shares deposits in banks and all categories of fines created by necessity 
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of time; others include building of motor parks for vehicles as well as use of towing 
vehicles to charge fees on fines imposed for illegal parking among others.
Many sources of revenue are open to the local government, but the amount of 
rates or fees fixed fro each of these sources of revenue are too meager to play any 
significant role in the finances of the local governments. As meager as these rates or fees 
are, many local governments still find it difficult to generate these revenues. The reasons 
that can be attributed to this are; obsolete and outdated status of enabling instruments 
guiding the collection of these revenues (IGR) in form of bill, law and bye-law and 
people’s negative attitude towards payment of dues which includes; tax evasion, 
avoidance, concession. Others are personnel problem, nepotism, dishonest behavior of 
tax collectors, poor accountability, lack of revenue – yielding assets, rough handling and 
battering of tax collectors.
Tax evasion constitutes a serious hindrance to revenue generation in the local 
government estimated cost and actual revenue. Similarly, it accounts for the 
ineffectiveness of collection process and unrealistic estimates. This tax evasion covers 
not only malpractices of various kinds but also that failure to comply with the law due to 
ignorance, misunderstanding, error and negligence on the part of the tax payers.    
In some local governments, Ife South Local Government for instance, Tenement 
rates which supposed to constitute almost 60% of the local government revenue were not 
being collected by the local government revenue were not being collected by the local 
government. The reason for this, is that the local government is one of the semi urban 
local governments in Osun State and it is difficult to collect property rates in semi urban 
areas compared to what is obtainable in urban  areas.
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However, efforts of local governments to attain financial autonomy were being 
distributed by the intervention of state government in local functions. In some area, 
revenues meant for local government have been taken over by state governments. 
Budgeting and financial memoranda were put in place as instruments of ensuring 
that the little available revenues to local governments are prudently administered. Upon 
all these local government are prudently administered. The reasons that can be attributed 
to this are that some local governments chairmen failed to acquaint themselves with the 
FM, misinterpretation of the provisions of FM to suit personal interest and corruption 
tendencies of the Career Officers ad the Political Functionaries.
At this juncture, it needs to be reiterated that IGR capacity is very poor and weak 
in the local government under study. Available records on the incomes of the local 
government have shown that only 1.91% of its revenues are being generated internally. 
So the little amount being generated internally play a little role in the finance of the local 
government. For instance, the total expected revenue for the year 2009 was 
N710,860,000.00 only, but the actual revenue realized stood at N654,709,814.67 only. 
And out of actual revenue realized, the IGR cover just 1.91% which was N5,387,823.71. 
The result was that the local government whole heartedly relied on statutory Allocation, 
Value Added Tax, 10% of state IGR, and Excess Crude Oil proceed top finance its 
recurrent and capital expenditures for the year 2009.  
1.2 Statement of the Problem 
One major challenge that all the local governments face is inadequacy of funds in 
relation to the quality and volume of projects that they need to execute to meet their 
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target development goals. Ife South  Local  Government is no exemption of this 
challenge as it depends heavily on the external sources of revenue such as monthly 
statutory allocation, 10%  of state IGR which may not come for  months, Value Added 
Tax (V AT) and Grants to finance its recurrent and capital expenditures. The monthly 
statutory allocation which practically formed the main source of the Local Government 
Revenue had been reduced drastically due to the global economic meltdown (that reduces 
the price of crude oil in the world market) to the extent that it is not even enough to 
finance recurrent expenditure of the local government not to talk of capital expenditure. 
The result is that the Local Government for the past few months has been finding it 
difficult to pay its staff salary.
The Internally generated revenues which supposed to be a succor to this local 
government were not available and the little ones that are available are not sufficient and 
these insufficient ones were being poorly administered. This situation has worsen the 
financial status of the local government.
The pointer to these aforementioned situations is that Ife South Local Government 
is not economically viable which is a dangerous dimension to its withstanding the test of 
time. Equally of note, is the fact that the local government in the area of economy base. 
With the present economic meltdown, any future restructuring (merger) of the  third tier 
of government, Ife South Local Government stand no better chance if it could not provide 
largely for its finances and ensure proper administration of the little  available ones.
1.3 Objectives of the Book
This book aimed at achieving the following objectives  
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(1) identify the viable sources of Internally Generated Revenue (IGR) 
available to Ife South Local Government; 
(2) examine the problems confronting this local government while generated 
these internal revenue; and 
(3) assess the management of Internally Generated revenue ion the Local 
Government.
1.4 Research Questions
The following research questions are designed to pilot the work;
i. what are the viable sources of IGR available to Ife South Local 
Government?
ii. what are the likely problems inhibiting improved Revenue generation
iii. is there proper management of IGR in Ife South Local Government?
1.5 Scope of the Book
The book focused on the sources of Internally Generated revenues Ife South Local 
Government and problems being encountered while generating these IGR. How these 
revenues are being managed in financing developmental projects and social services in 
the Local Government area were also focused. This study focused on Ife South Local 
Government area of Osun State.   
1.6 Limitation of the Book
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All the people approached in the course of this research did their   best to make 
the work easy and fruitful. They showed all the documents requested for and allowed me 
to go through them. This may not be unconnected with the fact that the Researcher is 
from the local government area.
The major limitations to the book was experienced in the area of paucity of 
references materials. The researcher also faced the problem of  finance. The time/period 
given for carrying out the research was also shot and also served as limitation to this 
study. 
1.7 Significance of the Book              
People believe that many Local Governments have not been able to  carry out the 
statutory functions for which they were founded. This is due to the fact that some local 
Government were unable to generate needed revenue for financing their programme and 
the total dependency on grant or monthly statutory allocation from the central or federal 
Government. So this book is important in the sense that it should help to remove the 
erroneous belief that Local Government is a liability to the state and federal government. 
Recently too, a few State Governments are canvassing for abrogation of local 
governments through constitutional means in favour of an all-inclusive and powerful 
state administration. This study will also help to remove the erroneous belief. 
Also, the book would help us to know that local government can generate revenue 
internally that will make them viable to carry out their statutory functions if well 
managed. In addition, this study would also exposed some local government to some 
viable sources of revenue generation within their reach and various means of tapping 
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these revenues. It will also expose some local governments to some of the problems to be 
encountered while generating revenue internally and how to judiciously administer the 
little revenues generated for meaningful development.
Hopefully, the study would also help others that will be conducting research into 
the local government system and would serve as impetus for  further research in related 
field.  
1.8 Operational Definitions of Terms               
These are concept, terms, or words used in the book or that carries other meaning 
than their universal usage. They include 
1. Administration: It connotes the way IGR is being administered in the local 
government.
2. Excess Crude: This is the proceed accruing to Local Governments from the sales 
or crude oil by the Federal government.
3. External Generated Revenues: These are the revenues coming into a local 
government from the State and Federal Government
4. F.M.:- Financial Memoranda 
5. Finance: This is total money being used to run the recurrent and capital 
expenditures of a local government. 
6. IGR: Means Internally Generated Revenues
7. Internally Generated Revenue: These are the revenues derived from within the 
council area itself. 
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8. Local Government: The 1976 Local Government Reform report sees Local 
Government as the Government at the local level exercised through representative 
council, established by law to exercise specific power within defined areas. 
9. Revenue: This is all the income generated by the government from subvention, 
taxes, grants etc which come usually on daily, monthly, quarterly or yearly basis.
10. Statutory Allocation: This is monthly allocation or money coming to each local 
government from the federation account.
11. “Transformed / Re-branded Leadership” means leader that builds on man’s needs 
for meaning, that creates institutional purpose and  get things done.   
12. V AT:- This means Value Added Tax V AT is used to describe the share of local 
government from the proceeds from the value added tax.
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