A review of private sector tax revenue generation at local government level: Evidence from Nigeria

Abstract

This paper reviews the work of Ndulue (2005) to ascertain the significance of private sector revenue
generation at the local government level using data from FCT, Abuja. Mobilization of tax income from self
employed people has always posed a serious challenge to Local Government authorities in Nigeria. Millions
of naira have been lost due to prevalence of tax evasion and avoidance among the self-employed people. As a
result, taxation can be used as a major instrument of revenue mobilization and or as a key to sustainable
economic development in Nigeria since it hinders realization of fiscal policy objectives of government. This
study is aimed at finding the root causes of tax evasion and avoidance among the self-employed people in
FCT, Abuja, with a view to exploring ways of encouraging them to comply with tax matters in a bid to boost
local government revenue sources that will provide adequate funds for development efforts of government.
This study utilized data collated by Ndulue (2005) from FCT, Abuja to carry out both fundamental analysis and
simple percentages evaluation of issues in the tax revenue mobilization among the self-employed and tax
administration skills of the local authorities. Questionnaires were administered to both the self-employed and
staff of Federal Board of Inland Revenues Tax Office, Abuja to source out data on the issues of research.
Findings from the field survey profoundly revealed that there exists: (1) significance tax avoidance and
evasion by the self-employed in FCT, which has adversely affected the quantum of revenue mobilization from
income tax; (2) several factors are responsible for this dismal tax situation such as: high personal income tax
rate; complexity of the assessment and collection procedures; lack of adequate tax incentives; lack of
taxpayer education and high costs of compliance; among others. All these go to reveal that the Nigerian tax
system faces serious challenges of ineffectiveness and inefficiency. To revive the system, a three pronged
approach is, here and now, recommended: (i) the tax laws, tax policies and tax administration should be
holistically reviewed; (ii) the penalties to be meted out to tax offenders should be made severe to deter tax
evasion and avoidance; (iii) the tax policies should be well focused geared towards reducing the personal
income tax rates and providing adequate tax incentives and taxpayer education. Finally, effective and efficient
tax policy will eliminate high compliance costs, make self-employed people tax compliant and increase total
revenue generated from tax sources thereby making taxation a veritable tool in the hand of government to
sustainable economic growth and development in the emerging Nigerian economy.
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