Impact of Tax Administration on Lagos State Revenue

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CHAPTER 1
1.0 INTRODUCTION
1.1 BACKGROUND OF STUDY
The world over, taxes is one major source of government revenue, however, not every government
has been able to effectively exploit this great opportunity of revenue generation. This can be
attributed to a number of reasons including the system of taxation; tax legislation; tax
administration and policy issues; over reliance on other sources of revenue (such as foreign aid
and grants); corrupt practices in the system – especially as it relates to the system of tax collection
and the behaviour of citizens towards tax payment; and ease of tax payment (Akintoye and Tashie,
2013). However, the increasing cost of running government coupled with dwindling revenue has
led various State governments in Nigeria in formulating strategies to improve their revenue base.
(Ahmad, 2005) as cited in (Enahoro and Olabisi, 2012) pointed out that the objectives of the tax
system are multi-dimensional in nature which includes revenue generation, resource allocation, a
fiscal tool for stimulating economic growth and development and social functions, like redressing
the rural-urban population drift. Taxes, and tax systems, are fundamental components of any
attempts to develop a state, and this is particularly the case in developing or transitional nations.
The near collapse of the National economy has created serious financial stress for all tiers of
government (Adenugba and Ogechi, 2013). Despite the numerous sources of revenue available to
the various tiers of government, oil alone accounts for 40 percent of the country’s GDP, 70 percent
of budget revenues, and 95 percent of foreign exchange earnings (Oloyede, 2010). Unfortunately,
the serious decline in the price of oil in recent years has led to a decrease in the funds available
for distribution to the states. The need for state and local government to generate adequate revenue
from internal sources has therefore become a matter of extreme urgency and importance. This
need underscores the eagerness on the part of state and local governments and even the federal

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government to look for new sources of revenue or to become aggressive and innovative in the
mode of collecting revenue from existing sources. Section 16 (b) of the 1999 Constitution of
Federal Republic of Nigeria, under the Economic Objectives, provides that the government should
control the national economy in such manner as to secure the maximum welfare, freedom and
happiness of every citizen on the basis of social justice and equality of status and opportunity.
Section 16 (c) of the same Constitution further provides that the state without prejudice to its right
to operate or participate in areas of the economy other than the major sectors of the economy,
manage and operate the sectors of the economy. Generally, government the world over earns
revenue from taxes, non- tax income and capital receipts.
Revenue:
As stated by the International Monetary Fund (IMF) (2001), revenue is an increase in net worth
resulting from a transaction. For general government units, there are four main sources of revenue:
taxes and other compulsory transfers imposed by government units, property income derived from
the ownership of assets, sales of goods and services, and voluntary transfers received from other
units.
Tax:
Arnold and Mclntyre (2002) defined tax as a compulsory levy on income, consumption and
production of goods and services as provided by the relevant legislation. According to Azubike
(2009), tax is a major player in every society of the world. The tax system is an opportunity for
government to collect additional revenue needed in discharging its pressing obligations. Odusola
(2006) stated that Nigeria’s tax system is characterized by unnecessary complexity, distortion and
largely inequitable tax laws that have limited application in the informal sector that dominates the
economy. (Abubakar 2008) as cited in (Enahoro and Olabisi, 2012) further opined that the
Nigerian tax system has undergone significant changes in recent times. The tax system is the

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process of taxation involving sets of rules, regulations and procedures with the organs of
administration interacting with one another to generate funds for government (Agbetunde, 2010).
An efficient and effective tax system offers itself as one of the most effective means of mobilizing
a nation’s internal resources and it lends itself to creating an environment conducive to the
promotion of economic growth. Nzotta (2007) argues that taxes constitute key sources of revenue
to the federation account shared by the federal, state and local governments.
Non-Tax Revenues:
These are other sources of government revenue. They include administrative revenue, gifts,
revenue from government property, revenue from public enterprises, government owned
corporations incomes, central bank revenue and others.
Capital Receipts:
These can be in the form of external loans and debts from international financial institutions
like the International Monetary Fund (IMF) and the World Bank.
Internally Generated Revenue:
Internally generated revenue are those revenues that are derived within the state from
various sources such as taxes (pay as you earn, direct assessment, capital gain taxes, etc.),
and motor vehicle license, among others.
Revenue is the bedrock upon which any government’s electoral promises can be realized
(Shodipo, 2013). It is the enabling factor in the provision of public goods. The state recognises its
unique status. The state government is striving to actualise its dream of making Lagos a mega city
by the year 2015. It is also poised to live up to its responsibility of providing basic infrastructure,
such as roads, drainage, water, education and health-related services needed by its ever-growing
population (Ebulu, 2008). This study therefore seeks the discover the actualisation of the mandate

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of the state government in providing the basic social needs of its citizens solely through the state’s
internally generated revenue
1.2 STATEMENT OF THE PROBLEM
The increasing running cost of government coupled with rapid infrastructural requirement
to meet expanding social needs of citizenry has left various governments with formulating
strategies to improve revenue base. The contending problem of tax evasion, collusion of tax
officers, staggering population increase and diversion of revenue belonging to government into
private pockets remain like a sore, refusing to go away. This in addition to the unscrupulous
activities of some tax consultants engaged curtail revenue drive. While decrying the low
productivity of the Nigerian tax system, “deficiencies in the tax administration and collection
system, complex legislations and apathy on the part of those outside the tax net” are identified as
some of the root causes of inadequate internal revenue generation (Ijewere, 1991 and Ndekwu,
1991) as cited in (Ariyo, 1997). In the case of Lagos state, the story was a sordid affair. By the
turn of the last Century, Lagos had become an international poster - child for the doomsayers of
the coming urban challenge — with a reputation for overcrowded and squalid living conditions,
high rates of crime, poor governance, urban and environmental degradation and transport chaos
(Filani, 2012). For a megacity the size of Lagos, with its huge infrastructural and governance
backlogs, the challenges are enormous. Its transformation is a long- term project, requiring a
combination of clear and consistent leadership, constant reform and innovation, meaningful
engagement with the city’s private and corporate citizens and huge investments (Filani, 2012).
This study seeks to discover how the Lagos state government managed the deplorable revenue
situation and brought a turn around to the situation in the state and the lives of its citizens.
1.3 AIM AND OBJECTIVES OF THE STUDY

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The aim of the study is to assess the revenue generation drive of Lagos state government through
efficient and effective tax administration alongside its impact on the citizens of the state. Since the
bulk of the revenues flow from the citizens’ pockets, the payment compels the citizens to ask
questions and show interest in how those entrusted with the management of the collective wealth
of the citizens, discharge their duties.
The specific objectives of the study are to:
i. Examine the effect of efficient and effective tax administration on internally generated
revenue in Lagos state.
ii. Evaluate the impact of increased revenue generation on the economic well-being of
citizens in Lagos state.
iii. Determine the extent to which efficient and effective tax administration has influenced
economic and infrastructural development in Lagos state.
1.4 RESEARCH QUESTIONS
i. What has been the effect of an efficient and effective tax administration on internally
generated revenue in Lagos state?
ii. How has the increase in internally generated revenue of the Lagos state government
affected the economic well-being of the citizens in Lagos state?
iii. To what extent has an efficient and effective tax administration influenced economic and
infrastructural development in Lagos state?
1.5 RESEARCH HYPOTHESES

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In order to answer the above research questions, the following hypotheses were formulated.
HYPOTHESIS ONE
H0: Effective and efficient tax administration has not increased Lagos state internally generated
revenue.
H1: Effective and efficient tax administration has increased Lagos state internally generated
revenue.
HYPOTHESIS TWO
H0: Increased revenue generation has not affected the economic well-being of Lagos state citizens.
H1: Increased revenue generation has affected the economic well-being of Lagos state citizens.
HYPOTHESIS THREE
H0: Efficient and effective tax administration has not influenced infrastructural and economic
development in Lagos state.
H1: Efficient and effective tax administration has influenced infrastructural and economic
1.6 SIGNIFICANCE OF THE STUDY
In appraising the Nigerian tax system as a tool for revenue generation, Naiyeju (2010) and Odusola
(2006) asserted that the system is seen as being lopsided, and dominated by oil revenue. However,
14 years since the return of democracy, efforts by leaders at various tiers of government have been
geared towards arresting the imbalance and coming up with a regeneration programme that will
give the people, for whose wellbeing the government exists, a new lease of life. This reason largely
informed the tradition in Nigeria whereby a government is assessed by its ability to provide basic

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infrastructure such as good roads, potable water, electricity as well as guaranteeing efficient and
effective education and health care systems. (Ajayi, 2013).
Thus, the study is significant to state governments in Nigeria as it highlights the aggressiveness
and innovativeness of the Lagos state government to generate revenue aside from oil sources and
federal government allocations through effective and efficient tax administration.
This study is significant to international analysts interested in the reforms going on in Lagos state,
what drives this development and the impact on residents of the state.
Finally, the study can serve as a means by which the citizens of the state can appraise the Lagos
state government.
1.7 SCOPE AND LIMITATION OF THE STUDY
This study is delineated to the geographical area of Lagos state. This is because it is believed that
Lagos state serves as a role model for other states in terms of business activities and rules and
regulations guiding various types of businesses in Nigeria with respect to taxation (Adeyeye,
2004). It assesses the revenue generating machinery of the Lagos state government, evaluating the
impact of increased revenue generation on the citizens of Lagos state.
Constraints in the course of the study include shortage of time, lack of finance, uncooperative
respondents, non-knowledgeable respondents, respondents’ bias in answering questions,
inaccessibility to information termed confidential, inaccessibility of respondents and no response
from some respondents.
REFERENCES

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Adenugba, A. A & Ogechi C. (2013). The Effect of Internal Revenue Generation on Infrastructural
Development. A study of Lagos State Internal Revenue Service. Journal of Educational
and Social Research, 3 (2), 419-436.
Adeyeye, G. B. (2004). An overview of personal income tax in Nigeria. (A case study of Lagos
state. Global Journal of Accounting, 1(2), 15-33.
Agbetunde, L. A. (2004). Principle and Practice of Nigeria Personal Income Tax. (1st ed.) Lagos.
El-Toda ventures Limited.
Akintoye, I. R & Tashie, G. A. (2013). The Effect of Tax Compliance on Economic Growth and
Development in Nigeria, West –Africa. British Journal of Arts and Social Sciences, 11(2),
222-231. Retrieved from http://www.bjournal.co.uk/BJASS.aspx
Arnold, J. B. & Mclntyre, J. M. (2002) International Tax Primer, (2nd ed.), Netherlands Kluwer
Law International, The Hague.
Ariyo, A. (1997). Productivity of the Nigerian Tax System: 1970-1990. African
Economic Research Consortium, Nairobi, Research Paper 67.
Azubike, J. U. B. (2009). Challenges of tax authorities, taxpayers in the management of tax reform
processes. Niger Account, 42(2), 36-42.
Babatunde, F. (2013). The Sun Newspapers, Business. July 15, 2013
Enahoro, A. J. and Olabisi, J. (2012). Tax Administration and Revenue Generation of Lagos State
Government, Nigeria. Research Journal of Finance and Accounting, 3(5), 133-139.
Filani, M. O. (2012). The changing face of Lagos: From vision to mission and transformation.
Lagos Reform Report, Ibadan. Foundation for Development and Environmental Initiatives,
Ibadan, Nigeria.

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International Monetary Fund. Government Finance Statistics Manual, 2001.
Nzotta, S. M. (2007) Tax Evasion Problems in Nigeria: A Critique. The Nigerian Accountant,
12(1), 40-43
Naiyeju, J. K (2010): Nigerian Speaks on Taxation: A tool for Social Change Administration in
Nigeria and the Issue of Tax Refund. A paper presented as part of Nigeria’s 50th
Anniversary Celebration at Aso Hall. Oct 1, 2010.
Odusola, A. F. (2002). Kwara State Public Expenditure Review. A Technical Report on State
Public Expenditure Review in Nigeria Submitted to the World Bank.
Oloyede, O. I. (2010). Repositioning the Nigeria’s Tax System: Suggested Policy Measures.
Shodipo, B. (2013) Text of the press briefing by the special adviser to the governor on taxation
and revenue, Mr. Bola Shodipo, to mark the mid-term of the 2nd term in of the Lagos state
governor.
CHAPTER TWO
2.0 LITERATURE REVIEW

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2.1 INTRODUCTION
Nigeria is richly blessed with oil and gas among other mineral resources, but the over dependence
on oil revenue for the economic development of the country has left much to be desired.
According to Ariyo (1997), Nigeria's over dependence on oil revenue to the total neglect of
other revenue sources was encouraged by the oil boom of 1973/74. This was unsustainable
due to the fluctuation in the oil market which have in most cases plunged the nation into
deficit budgets (Omolehinwa, 2011). In the case of Lagos state, it is believed that the non-
implementation of tax laws is making the Lagos state government to lose revenue that could be
generated internally (Adeyeye, 2004). In order to carry out development in all nooks and crannies
of the society, it is the responsibility of the Lagos State Government to provide direct development
to people to a certain level. Development is associated with funds and much revenue is
needed to plan, execute and maintain infrastructures at the state level. The needed revenue
generated for such developmental projects like construction of accessible roads, building of public
schools, health care centres, construction of bridges are generated from taxes, royalties, haulages,
fines, and grants from the states, national and international governments. These funds are obtained
either internally or externally.
2.2 GENERAL REVIEW OF LITERATURE
2.21 REVENUE
The term revenue has been defined by various authors in different ways. According to
Section 162 subsection, 10 of the constitution of the Federal Republic of Nigeria 1999 CAP. 23
Laws of the Federal Republic of Nigeria 2004 "revenue" means any income or return accruing to
or derived by the Government of the Federation from any source and includes -
(a) any receipt, however described, arising from the operation of any law;

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(b) any return, however described, arising from or in respect of any property held by the
Government of the Federation;
(c) any return by way of interest on loans and dividends in respect of shares or interest held by the
Government of the Federation in any company or statutory body.
Adams (2006) defines revenue as the fund required by the government to finance its activities.
These funds are generated from different sources such as taxes, borrowing, fine, fees etc. It is
also defined as the total amount of income that accrues to an organization (public or
private) within a specified period of time. Hamid (as cited in Adenugba and Ogechi 2013).
States’ revenue comprises of receipt from taxation as well as those which are not the proceeds of
taxation, either the realization from the sale of government properties or other interests and
returns from loans and investment earning. Bhartia (2001) contends that revenue receipts
include “routine” and “earned” income. For these reasons, according to him, revenue do not
include borrowing and recovery of loans from other parties, but it includes tax receipts,
donations, grants, fees and fines and so on.
Similarly, Pearce (as cited in Adenugba and Ogechi 2013), defines government revenue as all
the money received other than from issue of and debt, liquidation of investments.
Government revenue includes tax collections, charges and miscellaneous revenues, utility and
insurance trust revenue for all funds and agencies of a government. Public revenue according
to Stephen and Osagie (as cited in Adenugba and Ogechi 2013) is concerned with various ways in
which the government raises revenue. From the foregoing definitions, it can be said that revenue
is the total amount of income accruing to a state from various sources within a specified period.
State government, like the other two tiers of government, has sources and uses of revenue. Osisami
(as cited in Adenugba and Ogechi, 2013) states that there are two types of revenue accruing to
state governments. These are internally generally generated revenue and revenue allocated from

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the Federation account to finance their expenditure programmes. State governments as the second
tier of government in Nigeria derive their revenue from various sources. However, it should be
noted that sources of revenue are by no means uniform among the states. States derive
their revenue depending on the resources available to them (Anyafo, 1996; Daniel, 1999;
and Adam, 2006). The share of federation account to states constitutes 57.97% in 2002 of the total
revenue plus grants and this rose to 65.82% in 2006; while the internally generated revenue
declined from 13.38% in 2002 to 8.11% in 2006 (CBN, 2006). The average percentages of
internally generated revenue in relation to the federal allocation were between 5-9percent for most
non-oil producing states in the recent past. Kano was able to slightly exceed 10% in 2004 to date
due to aggressive revenue generation efforts, with Lagos state as the only exception.
Internally generated revenue are those revenues that are derived within the state from
various sources such as taxes (pay as you earn, direct assessment, capital gain taxes, etc.),
and motor vehicle license, among others. While the statutory allocation from Federation
Account, Value Added Tax constitute the external source. Most states of the federation get the
bulk of their revenue in form of statutory allocation from the federation account.
2.22 TAX ADMINISTRATION
While tax policy and tax laws create the potentials for raising tax revenues, the actual amount of
taxes flowing into the government Treasury, largely, depends on the efficiency and effectiveness
of the revenue administration authorities. Efficiency and effectiveness should be the watchword
in designing a tax administration structure that will give the desired result (Abiola and Asiweh,
2012). Tax administration in Nigeria is the responsibility of the various tax authorities as
established by the relevant tax laws (Kiabel and Nwokah, 2009). Kiabel and Nwokah, (2009) noted
“Tax authority “to mean Federal Board of Inland Revenue, the State board of internal revenue and

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the local government revenue committee. The tax authority in Lagos state is the Lagos State Board
of Internal Revenue.
Weaknesses in revenue administration lead to inadequate tax collections (Adenugba and Ogechi,
2013). The Nigerian tax administration is in line with the British model of tax administration since
1960 and has been operating this up to 1990 when the self-assessment scheme came into play
which is similar to the American model of tax administration system (Adesola, 2004). The British
model of tax administration assumes tax payers are incompetent as to tax process and tax
authorities do not rely on information supplied by tax payers (Enahoro and Olabisi, 2012). Lagos
state has however adopted the American model of tax administration in deference to the rigid
British model. The American model has been a success in America because of its peculiar features
such as voluntary compliance system, competence of tax payer, efficient data processing and
system which aids detection of fraud. Effective tax administration designed to enhance revenue
generation requires both the commitment of government and time. Successive Administration of
Lagos State in recognition of this developed improved Revenue Administration structure targeted
at increasing internal revenue accruable to the government. As stated in Adenugba and Ogechi
(2013), the main administrative measures taken in the past ten years to improve revenue include:
• Accelerated Revenue Generation Programme (ARGP) – 1994
• CITI Bank Direct Monitoring and Reporting of Internal Revenue System – 1999
• Electronic Banking System of Revenue Collection and Monitoring (EBS-RCM) – 2000
• Granting Full Autonomy to Lagos Board of Internal Revenue – 2006.
2.23 SOURCES OF REVENUE

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The sources of revenue of the state government are divided into two parts viz: recurrent revenue
and capital receipts.
a) THE RECURRENT REVENUE:
i. Taxes: Ogundele (1999) defined tax as “the levy by public authorities with a tax jurisdiction, of
compulsory contributions by citizens to defray part of the cost of government activities in
providing the needs of the society. The taxes the states government collect are personal income
tax; (excluding those of the Armed Forces, external affairs officers, foreign nationals, residents
of the Federal Capital Territory, Abuja and the Nigerian Police Force) football pools and other
betting taxes, capital gains tax, entertainment tax, stamp duties, capital transfer tax.
ii. Licenses, Fees and Fines: These embrace among others, motor vehicles and drivers’ licenses
land registration and survey fees and fines imposed on offenders.
iii. Earnings from economic activities: State governments do engage in some activities
with a view to making profits. These include establishments of banks, and investment ventures
(For example; Odua Investments) which involves sale of goods and services. Others are lotteries,
rent on government properties and dividends.
iv. Allocation from the Federation Account: State governments are entitled to monthly
allocation from the Federation Account, which they share horizontally among themselves. It is, at
present twenty-four percent of the total amount that accrues to the Federation Account.
v. Value-added Tax (VAT) allocation: It should be noted that VAT replaced sales tax
which used to be exclusive preserve of the state governments. Therefore, at the inception of the
VAT in 1994, the state government was given 80% of the proceeds from VAT. Although the
percentage has now been reduced to 50%, the state government still receives the largest share of
the VAT proceeds.

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b) THE CAPITAL RECEIPTS:
i. Grants: These usually come from the Federal Government. The purpose could be to enable a
new state take off, or to carry out specific projects or to finance Federal Government programmes
in the state. A good example is the projects under the Directorates of Food, Roads and Rural
Infrastructures (DIFRRI).
ii. Loans: These can be internal or external loans. The internal loans represent borrowings by
state governments from sources within the country. The sources include individuals, organizations
such as commercial banks, the Federal Government or other states. On the other hand, the external
loans are often taken from the World Bank, International Monetary Fund (IMF), as well
as foreign countries or organizations. However, approval must be received from the Federal
Government before the loans can be obtained. Besides there is a limit to the amount of loan
a state government can borrow or have outstanding at a time.
i. Financial Aids: These are funds from foreign countries or charitable international
organisations such as UNICEF to execute in the states some humanitarian programmes like
children immunization, control of epidemic diseases. The aids could also be meant to assist
states that suffer some disasters.
2.24 CHALLENGES OF TAX ADMINISTRATION IN LAGOS STATE
Under the administration of tax in Nigeria, Ayua (1996) pointed out that the major problem lies in
the procedures, machinery and approaches adopted in collection, assessment and corrupt practices
of tax. Naiyeju (2005) pointed out that most of the tax authorities in Lagos State lack the desired
institutional capacity to administer tax system effectively. Mostly employees paid the bulk of tax

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at the time in the state. Politicians, the rich, the professionals and the privileged individuals were
inequitably taxed. Fashola (2009) noted that the corruption risk erodes the tax yield and confidence
in the tax system and at the Local Governments level, there is a dearth of capable hands to
administer the relevant tax provisions efficiently. According to Ekpo and Ndebbio (1998), other
problems of tax administration centre on inadequate personnel in terms of quantity and quality.
The shortage of qualified tax personnel is partly responsible for the poor enforcement. At the local
government level, tax collectors include messengers and tax clerks who are not knowledgeable in
tax practices supervise some daily-rated employees. This category of staff are generally not
adequately equipped to carry out the tax operations. It is observed that due to their low level of
education, tax officials are not conversant with the tax laws and regulations (Enahoro and Jaiyeola,
2012). The sharp and dishonest practices by some tax officials, especially at the local government
level, posed a serious threat to tax administration in Lagos state.
2.25 STRATEGIES FOR REVENUE GENERATION
Hofer and Schedal (as cited in Adenugba and Ogechi, 2013), described strategy as a game plan
through which aims and objectives of an organization are achieved. They also defined the strategy
of revenue generation as the fundamental pattern of present and planned resource department, and
environmental interaction that indicate how the organization will achieve its aims and objectives.
Furthermore, for effective revenue generation, Hofer and Schedal (1978) suggested the following
strategies:
i. Introduction of additional sources of revenue.
ii. Providing an incentive for extra efforts of the revenue generation staffs.
iii. Periodic raiding by officer of the revenue generation.

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iv. Efficient and effective collection of existing taxes.
v. Public enlightenment and campaign that will educate the tax payer on the importance
of prompt payment.
Lagos State has enjoyed strong revenue growth in recent years, which has triggered rapid
expenditure expansion, especially on the capital budget. The growth in revenue has been because
of high world oil prices, a growing economy, increased federal transfers, and most significantly,
increased Internally Generated Revenues (IGR) (World Bank review, 2010). Monthly IGR for
Lagos State has increased from N 0.6 billion per month in 2002 to N 15 billion in 2009. Going
forward, the state recorded N 185.9 billion in 2010, which increased to N 202.76 billion in 2011
and rose further to N 219.2 billion in 2012. About N 120.25 billion was realised from Pay as you
Earn (PAYE) in 2011; N 7.97 billion from direct assessment, and N 74.54 billion from other
sources, while N 104.681 billion came from PAYE in 2010; N 7.51 billion from direct sources,
and N 73.704 billion from other sources. Overall, total IGR collections have more than doubled
in real terms since 2004, from 2.4 percent to 3.5 percent of Gross State Domestic Product (World
Bank Review, 2010). The government continues to undertake the necessary reforms to increase
internally generated revenue in the state. The State revenue profile has improved markedly. Strong
IGR growth has led to a substantial change in the percentage share of revenue between Transfers
and IGR. Since 2006, the share of IGR in Lagos State revenue (excluding grants) has risen
significantly above par to an average of 61 percent, making Lagos much less reliant on federal
revenues that are highly susceptible to oil price fluctuations. The share of capital receipts in state
revenue has been stable at about 5 percent, but rose sharply in 2007 to 14 percent, owing to one -
off proceeds from the sale of shares (Table 1).

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Table 1:
Source: Lagos state treasury.
Further analysis by source of revenue indicates that the composition of IGR has not changed
substantially over the last eight years. The largest category remains taxes (essentially personal
income tax and capital gains tax), which represent usually 75-83 percent of IGR (See Table 2).

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Table 2: SUMMARY OF LAGOS STATE INTERNALLY GENERATED REVENUE: YEAR 2006 - 2011
Source: Lagos state treasury.
Other IGR categories include fines and fees, licenses, earnings and sales, rents on government
property, interest payments and dividends, contributions (actually some reimbursements by the
FGN), and miscellaneous. The Lagos State Government is currently engaged in a legal battle with
the Federal Government over the collection and retention of Sales Tax. Under the case, the Lagos
State Government. It is also contesting the fairness of the revenue allocation formula that
distributes the sales tax revenues equally amongst all states when the bulk of Nigeria’s sales tax

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revenue is collected from Lagos State. A positive outcome for Lagos on this case would result in
a significant increase in the share of sales tax revenue in IGR. The increase in IGR has been the
result of several reforms implemented by the State Government. These reforms have focused on
the restructuring of the state’s Internal Revenue Service, introduction of more convenient and
fraud free processes of tax collection process, and a vigorous taxpayer education campaign.
Broadening of tax base:
Internally Generated Revenue (IGR) collection has increased substantially, owing to the
broadening of the tax base and the tightening of collection processes against various types of fraud.
As at 2005, individual taxpayers totalled about 4 million and this figure was projected to reach 5
million by 2010, or 50% of official residents, up from 44%. Corporations grew to 330,000 in 2007
from about 250,000 in 2004, as the state sought to diversify its taxpayer profile by bringing more
medium-scale enterprises into the tax net. However, despite diversification efforts, taxes related
to the 10 largest corporations account for a significant share of Lagos’ total IGR -20 percent.
(World Bank Review 2010)
Computerization of revenue collection and monitoring:
In 2000, the Lagos State Government (LASG) put in place a new computerized infrastructure for
tax collection and monitoring known as the Electronic Banking System of Revenue Cycle
Management (EBS-RCM). The EBS-RCM is a sophisticated information network system linking
Tax Stations & other Revenue Agencies to lodgement banks. The Objective of the EBS-RCM is
to go online with the Direct Bank Lodgement System (DBLS) of the revenue collection process
and provide information for tax administration and planning while monitoring and co-ordination
of all revenue generating activities of the state. As a result, the system has led to the introduction
of more effective and fraud reducing measures such as automated payment receipts and electronic
tax clearance certificates. Alpha-Beta Consulting (ABC) Limited was appointed as the sole

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monitoring agent to control and monitor the collection of State revenue using the new system. The
responsibilities of ABC under this arrangement include:
i. Monitoring and reporting on all revenue generation, collection, and accounting activities
and operations of the Lagos State Board of Internal Revenue and all Lagos State ministries,
departments, and agencies (MDA’s).
ii. Developing and maintaining a comprehensive database of taxpayers in LAS, including the
introduction of a unique tax identification number for all taxpayers.
iii. Ensuring the computerization of processes, procedures, and documentation in respect of
Lagos State revenue collection and accounting.
iv. Integrating the revenue generation, collection, and monitoring activities of all other tax
consultants fully within the EBS-RCM infrastructure.
v. Training staff of revenue-generating agencies on EBS-RCM.
Increased autonomy of the Lagos State Board of Internal Revenue:
In 2005, a new Board of Internal Revenue (BIR) was created with a member representation
including more individuals from outside public service, and acting through the Lagos State
Internal Revenue Service (LIRS) that has large operational autonomy to manage the collection
and monitoring of revenue. The new BIR and LIRS commenced operation in November 2005.
The BIR is a regulatory and supervising agency whereas the IRS is the actual service provider in
terms of revenue collection and monitoring. The LASG was convinced that a properly organized
public agency enjoying sufficient autonomy, especially in the areas of human resource
management and budgets, could in due course take over a number of functions performed by the
consultants at a lower cost to the government and ultimately the taxpayer.

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Introduction of a Self-Assessment tax filing system:
The new system was introduced in 2008 and is aimed at making tax payment convenient as well
expand the taxpayers list. Individuals can conveniently pay their taxes at any of the 1,200 branches
of the designated banks as well as all the LIRS tax stations spanning all over the state and receive
their receipts within 72 hours of payment.
Taxpayer education campaigns and improved taxpayer services:
The Lagos State Internal Revenue Service (LIRS) has pursued a vigorous taxpayer education
campaign and expanded its network of taxpayer service points in the State. As a way of
encouraging Lagos residents to embrace tax payments as a measure of their responsibility to the
society, thereby making them pay taxes voluntarily without being forced, enlightenment efforts
has been boosted through tax campaigns in the print media, radio and television. These campaigns
have been taken to traditional rulers and major trade associations as a way of co-opting them into
the tax drive. Moreover, as a means of taking tax awareness and education to the potential tax-
paying public as well as bringing the tax assessment and revenue collection closer to them, the
LIRS has also established several stations in markets and bank branches throughout the state.
These explain how to fill in tax return forms and respond to all other types of taxpayer enquiries.
In appraising the impact of revenue on citizens and state development, (FIRS 2008) posited that
beyond revenue, a country must also be able to prioritize its expenditure pattern and its national
plan in a way that will give the country the best from whatever resources the country
has. Though the following is not exhaustive, development would involve the availability of the
following:
a) Social infrastructure such as in education and health with emphasis on continuing
education and constantly improving health care.

23
b) Physical infrastructure to enable private sector investment i.e. energy, transportation, security
of life and property.
c) Access to Property, Capital, and Opportunity for Individual and Communal Development.
d) Provision of social amenities for the young, the disadvantaged, the physically challenged, the
old and the dead.
e) Security of Lives and Property.
In buttressing the above, Adeyeye (2004) stated that “The money collected from taxes should be
judiciously spent on programmes that would improve the standard of living of the citizens of the
state.”
2.3 THEORETICAL FRAMEWORK
The fiscal federation theory was adopted as the basis for this work. The public sector in nearly all
countries consists of several different levels. The basic issue is one of aligning responsibilities and
fiscal instruments with the proper levels of government. As Alexis de Tocqueville (as cited in
Oates, 1999) observed more than a century ago, “The federal system was created with the intention
of combining the different advantages which result from the magnitude and the littleness of
nations”. However, to realize these “different advantages,” we need to understand which functions
and instruments are best centralized and which are best placed in the sphere of decentralized levels
of government. This is the subject matter of fiscal federalism. To carry out their functions, the
various levels of government require specific fiscal instruments. Onthe revenue side, governments
will typically have access to tax and debt instruments. The normative framework for most of the
literature in fiscal federalism consists of the traditional principles of welfare economics (Oates,
1999). From this perspective, institutions are evaluated by virtue of their impact on efficiency in
resource allocation and the distribution of income. Quigley (1997) said, “The delivery of public

24
services, the structure of taxation, and the economic relations within nations are greatly affected
by the partitioning of space into regions”. Musgrave (as cited in Quigley, 1997) categorised the
economic functions of government into three branches: the stabilization branch, the distribution
branch, and the allocation branch. The stabilization branch is responsible for aggregate demand,
fiscal policy, and for maintaining a stable price level. The distributional branch is responsible for
tax and transfer programs, so that a given level of economic efficiency is consistent with ethical
notions of the appropriate distribution of household incomes. The third, the allocation branch, is
concerned with the production of those goods and services, for which competitive private markets
fail to operate efficiently and it is to this branch that this study relates. In contrast to the first two
important aspects of government activity, for the allocation branch, which produces goods and
services, there are strong technical reasons for providing goods and services at the local level -
depending upon economies of scale in production and diversity of tastes in demand. Thus, the
appropriate economic role for regional government and for lower levels of government is to be
found in the provision of public services, infrastructure, and in the organization of public goods
supply. The DECENTRALISATION THEOREM (Oates, as cited in Quigley, 1997) tells us
that, for an important class of publicly provided goods, namely those whose production is
characterised by constant returns to scale and whose technical character rivals that of private
goods, provision by lower levels of government is superior to provision by a single government
or by higher regional authorities. The theoretical reason is by now clear. Economic welfare will
improve, as the provision of services for each group is closer to each member household's
optimum. In the United States, the central government has turned back significant portions of
federal authority to the states for a wide range of major programmes, including welfare, Medicaid,
legal services, housing, and job training. The hope is that state and local governments, being closer
to the people, will be more responsive to the particular preferences of their constituencies and will
be able to find new and better ways to provide these services (Sharma, as cited in Arowolo, 2011).

25
The other theorem about the design of regions for the production and allocation of public goods
has been termed the CLUB THEOREM (Buchanan, as cited in Quigley, 1997). This theorem is
relevant for the many public goods which exhibit some form of congestion, but which are also
subject to economies in cost sharing among citizens. Under these conditions, the optimal sizes of
regions and groups arise from an equilibrating process, and may be different for different groups
of the population or for different goods. On the one hand, the gains to an increased size of the
region (or the "club") arise from the larger number of people, over which the average cost of
service provision can be spread. Onthe other hand, efficiency losses from increased size of regions
arise from congestion. That is, when the number of people with whom the public good must be
shared increases, this reduces the quality of the good. According to the club theorem, the
appropriate size for a group to share in a collective good, is one in which the marginal costs from
additional congestion (arising from increased size) are offset by the marginal benefits from the
cost sharing management (arising because the costs of joint consumption can be spread over more
people) (Quigley, 1997). In the context of developing countries like the Nigerian state, there are
at least three additional issues having important implications for the choice of centralised versus
decentralised government finance (Arowolo, 2011). These issues are essentially dynamic in nature
and include the effects of centralization on revenue capacity; the relationship between the level of
government providing the services and administrative efficiency; and the effects of centralization
on dynamic efficiency or administrative responsiveness. Revenue capacity can include an
enhanced ability to raise revenues by levying and collecting certain taxes locally. It can also
include the ability to recover costs for area-wide public services from the tax revenues generated
in those areas. The former is an issue in tax administration: the latter is a rough approximation of
user charge finance (Akindele and Olaopa, 2002). The tax administration issue can cut two ways.
On the one hand, local authorities may possess an inherent comparative advantage in the valuation
of local land and property for tax purposes, and in the estimation of agricultural output. Similarly,

26
for the taxation of mobile financial resources, or even in evaluating the total incomes of
individuals, national authorities may possess a natural comparative advantage. On the other hand,
local authorities may not initially be as well trained and thus, would be less capable of revenue
collection, regardless of the comparative advantage of their formal organization. The second issue,
administrative efficiency in service provision and tax collection, can also cut two ways. A
presumption, in developing countries that central government employees are more competent
(because they are recruited nationally) is surely rebuttable (Quigley, 1997). Moreover, it may be
completely offset by the specialised knowledge, of local officials, about adaptations of services to
local conditions, or about potential economies of service production in particular circumstances.
Thirdly, the dynamic and responsiveness issues tend to favour greater scope for service provision
and taxation at lower levels of government. The advantages of local provision may include both
adaptability in service production and increased flexibility in administration. Thus, it may be well
worth sacrificing some of the short run efficiency of central government provision, to reap the
long run benefits of local provision by more adaptable local officials. The next step in the
theoretical framework is to determine the appropriate taxing framework. The division of
revenue sources among federal and subnational governments constitutes the tax assignment
problem (Anwar Shah, 2007). The “assignment problem,” or the allocation of expenditure,
regulatory, and tax functions to various orders of government, is the most fundamental issue in a
federation. The literature on fiscal federalism argues that finance should follow function. In other
words, assigning responsibilities for spending, including the exercise of regulatory functions must
precede the assignment of responsibilities for taxation because tax assignment is generally guided
by the spending requirements of the different orders of government and cannot be determined in
advance. It may be desirable to decentralise taxation at the same time as decentralising spending,
so that subnational governments will not have to rely exclusively on grants from the national
government. If subnational governments are not responsible for raising at least some level of their

27
own revenues, they may have too little incentive to provide local public services in a cost-effective
way. From the foregoing, we can summarise the role assignment, which flows from the basic
theory of fiscal federalism. The central government is expected to ensure equitable distribution of
income, maintain macroeconomic stability and provide public goods that are national in character.
Decentralised levels of government on the other hand are expected to concentrate on the provision
of local public goods with the central government providing targeted grants in cases where there
are jurisdictional spill-overs associated with local public goods (Arowolo, 2011). Once
expenditure and regulatory assignments have been agreed on, tax assignment and the design of
transfers become critical elements in matching expenditure needs with revenue means at various
orders of government. Although tax assignment can be undertaken independently of expenditure
assignment, – a common practice in developing countries – the advantages of a centralized tax
administration and a decentralized provision of public services becomes apparent when tax
assignment reflects anticipated spending. Such arrangements prevents an overdependence by state
and local governments on intergovernmental transfers, which can otherwise distort local spending
priorities. Four general principles require consideration in assigning taxing powers to various
governments (Anwar Shah, 2007).
i. First, the economic efficiency criterion dictates that taxes on mobile factors and tradable
goods that have a bearing on the efficiency of the internal common market should be
assigned to the national government. Subnational assignment of taxes on mobile factors
may facilitate the use of socially wasteful beggar-thy-neighbour policies to attract
resources to own areas by regional and local governments.
ii. Second, national equity considerations warrant that progressive redistributive taxes should
be assigned to the national government. This assignment limits the possibility of regional
and local governments’ following perverse redistribution policies using both taxes and
transfers to attract high-income people and to repel low-income ones. Doing so, however,

28
leaves open the possibility of supplementary, flat rate, local charges on residence-based
national income taxes.
iii. Third, the administrative feasibility criterion (lowering compliance and administration
costs) suggests that taxes should be assigned to the jurisdiction with the best ability to
monitor relevant assessments. This criterion minimizes administrative costs as well as the
potential for tax evasion. For example, property, land, and betterment taxes are good
candidates for local assignment because local governments are in a good position to assess
the market values of such assets.
iv. Fourth, the fiscal need, or revenue adequacy, criterion suggests that, to ensure
accountability, revenue means (the ability to raise revenues from own sources) should be
matched as closely as possible to expenditure needs. The literature also argues that long-
lived assets should primarily be financed by raising debt to ensure equitable burden sharing
across generations.
The final element of this basic theory to note is the need for fiscal equalization. Mancur Olson
argues in a paper by Adenugba and Ogechi (2013) that, if a political jurisdiction and benefit area
overlap, the free-rider problem is overcome and the marginal benefit equals the marginal cost of
production, thereby ensuring the optimal provision of public services. Equating the political
jurisdiction with the benefit area is called the “principle of fiscal equivalency” and requires a
separate jurisdiction for each public service. In concluding our theoretical framework, our
attention is drawn to the dangers of decentralized levels of government relying too heavily
on intergovernmental transfers for financing their budgets.
CONCEPTUAL FRAMEWORK
Lagos is a mega-city of an estimated 16-21 million inhabitants that has suffered for decades from
large-scale poverty, rampant crime, environmental degradation, and insufficient public services

29
(World Bank Report, 2010). Over the last decade, however, Lagos State has achieved what many
would not have believed possible, sustaining rapid growth, improving infrastructure and services,
reducing crime significantly, and bringing millions out of poverty. While the record of poverty
reduction in Nigeria as a whole has been disappointing, during the last decade, Lagos State has
achieved major results in generating inclusive growth. In 2003 Nigeria adopted a home-grown
poverty reduction strategy referred to as the National Economic Empowerment and Development
Strategy (NEEDS). This strategy was later decentralised to the state level in 2004. Following the
example of the Federal Government, Lagos State formulated and adopted the Lagos State
Economic Empowerment and Development Strategy (LASEEDS) in 2005. It is “a poverty
reduction strategy aimed at achieving cohesive coordination of the development process through
adoption of a bottom-up approach and inclusiveness of stakeholders” (Ehingbeti, 2008). Despite
strong national GDP growth, the official poverty headcount in Nigeria declined only marginally
between 2004 and 2010 from 48% to 46% according to the National Bureau of statistics (2013).
In Lagos, by contrast, the poverty rate declined from 57% to 23% during this period (World Bank
Review, 2010). Reforms that brought visible improvements to public services in Lagos helped
foster greater trust of Government, which in turn facilitated increases in internally generated
revenues to meet the growing challenges of urbanization. The Lagos State Government recognizes
that sustaining the strong momentum in growth and poverty reduction will not be easy. Rapid
economic and population growth have made Lagos increasingly congested, which can be
associated with soaring rental rates, traffic jams, and growing demand for public services that has
put particularly strain on water and power. Increases in tax rates and tax collection have boosted
internally generated revenue (IGR), and this has been utilised in providing social services to the
citizens. Some of these include:
i. Integrated Mass Transit System: In 2003, the Lagos state government created the Lagos
Metropolitan Area Transport Authority (LAMATA), signalling its intention to re-orient

30
the way in which transport services were managed (Mobereola, 2006). One of the most
effective of LAMATA’s initiatives has been the introduction of a Bus Rapid Transit (BRT)
system on the Mile 12 to CMS corridor. A fleet of high-capacity buses runs on a
segregated, dedicated lane for about 65 percent of the entire corridor, significantly
reducing traffic congestion (Filani, 2012).
ii. Water Supply: Out of a total estimated water demand of 1,800 million litres per day in
Lagos State, only a third is supplied by public agencies (Filani, 2012). To improve water
supply, the state government has made significant investments to rehabilitate the
waterworks and to privatise the Lagos State Water Corporation. It has also focused on
constructing and refurbishing micro- and macro- waterworks, improving power generation
for water projects, providing efficient bill collection, and repairing or rehabilitating of
collapsed boreholes (Lagos state government, 2009).
iii. Power Supply: Lagos state consumes between 45 to 50 per cent of the electricity generated
in Nigeria and generates only 20 percent of its electricity supply (Filani, 2012). In recent
years the government has turned to independent power producers to help alleviate power
supply problems, particularly in Lagos megacity. An independent power project
implemented in 1999 by AES Nigeria, a subsidiary of AES USA, is responsible for
generating 270 megawatts of power through nine barge-mounted gas turbines, with an
option of upgrading to 540 megawatts. The $12 million project was financed by a
consortium of four foreign banks and three foreign institutions (Lagos state government,
2009)

31
Source: Author’s Design
INTERNAL REVENUETAXES
SOCIAL
INFRASTRU
CTURE
PROPERTY,
CAPITAL AND
COMMUNAL
DEVELOPMENT
PHYSICAL
INFRASTRU
CTURE
SECURITY
OF LIVES
AND
PROPERTY
CARE FOR
NON
WORKING
POPULATIO
N

32
REFERENCES
Abiola, J. & Asiweh, M. (2012). Impact of Tax Administration on Government Revenue in a
Developing Economy – A Case Study of Nigeria. International Journal of Business and
Social Science, Special Issue 3(8), 99-113
Adams, R. A. (2006). Public Sector Accounting and Finance. Lagos, Nigeria: Corporate
Publishers Ventures
Adenugba A. A, & Ogechi. C. F, (2013). The effect of Internal Revenue Generation on
Infrastructural Development. A study of Lagos State Internal Revenue Service. Journal of
Educational and Social Research. 3(2), 419-436
Adeyeye, G.B., (2004). An Overview of Personal Income Tax in Nigeria: A Case Study of
Lagos State. Global Journal of Accounting 1(2), pp. 15-33
Akindele, S.T. & Olaopa (2002). Fiscal federalism and local Government Finance in Nigeria: An
Examination of Revenue, Rights and Fiscal Jurisdiction. Contemporary Issues in Public
Administration. Pp. 46-64.
Anwar, S. (2007). Institutional Arrangements for Intergovernmental Fiscal Transfers and a
Framework for Evaluation in R. Broadway and Anwar S (Eds.) Intergovernmental Fiscal
Transfers (pp. 293–317). Washington, DC.
Anyafo, A. M. (1996). Public Finance in a Developing Economy: The Nigerian Case. Enugu,
Nigeria: Department of Banking & Finance, University of Nigeria.
Economic Research Consortium, Nairobi. Research paper 67.

33
Arowolo, D. (2011). Fiscal federalism in Nigeria: Theory and dimensions. Afro Asian Journal of
Social Sciences 2(2.), pp. 1-21
Ayua, I. A. (1996). The Nigerian Tax Law, Ibadan, Spectrum Law Publishing, Oyo.
Bhartia, H. L. (2009). Public Finance. (14th Ed.), New Delhi, Vikas Publishing House PVT Ltd.
Bucanan, J. 1965. An Economic Theory of Clubs, Economica.
Central Bank Of Nigeria, Annual Report 2006.
Ehingbeti, (2008) 4th Report and Summary of Proceedings. Lagos: Lagos State Ministry of
Information and Strategy
Ekpo, A.H. & Ndebbio, E.U. (1998). Local Government Fiscal Operations in Nigeria. African
Economic Research Consortium (AERC), Nairobi. Research Paper 73
Enahoro, A. J. & Olabisi J. (2012). Tax Administration and Revenue Generation of Lagos State
Government, Nigeria. Research Journal of Finance and Accounting, 3(5) pp. 133-139
Fashola, B. R (2009): My Fellow Citizens of Lagos State, Speech Delivered at the Inauguration
and Fund Raising Ceremony of Eko Club (London)
Federal Inland Revenue Service, 2008. Internally Generated Revenue (IGR) and the challenges
of National Development. A presentation at the first National Roundtable for good
proactive laws and governance.
Kiabel, D. B. & Nwokah, G. N. (2009) Boosting Revenue Generation by State Governments in
Nigeria: The Tax Consultant Option Revisited. European journal of sciences, 8(4).
Retrieved from: http://www.eurojournals.com/ejss_8_4_02.pdf.

34
Lagos State Government (2009). Ministry of Transport: Activities and Achievements. May 2007
to December 2008. Lagos.
Lagos State Government (2013). Lagos State Digest of Statistics. Lagos Bureau of Statistics,
Ministry of Economic Planning and Budget, Alausa, Lagos, Nigeria.
Mobereola, D. (2006). Strengthening Urban Transport Institutions: A Case Study of Lagos State.
Discussion Paper No. 5, Affordable Transport Services
Naiyeju J. K (2010): Nigerian Speaks on Taxation: A tool for Social Change Administration in
Nigeria and the Issue of Tax Refund. A paper presented as part of Nigerian 50th
Anniversary Celebration at Aso Hall Oct 1, 2010.
Oates, W. (1999). An Essay on Fiscal Federalism. Journal of Economic Literature, 37
pp. 1120–1149
Ogundele, A. E. (1999. Elements of Taxation. (1st ed) Lagos, Libri service Nigeria limited, Lagos,
Nigeria.
Quigley J. M. (1997). Fiscal Federalism and Economic Development: A Theoretical Overview. In
A. E. Andersson, B. Harsman and J. M. Quigley (Eds.), Government for the future –
Unification, Fragmentationand Regionalism. (pp. 83-101). Elsevier Science, B. V limited.
Stephen, N. M. & Osagie E. (1985). A textbook of economics for West African students. Ibadan,
Nigeria: University Press Limited
World Bank Report, 2010. Lagos Rolling Public Expenditure Review 1 May 2010 Poverty
Reduction and Economic Management, AFTP 3, AFCW 2, Africa Region.
https://openknowledge.worldbank.org/bitstream/handle/10986/12357/679360ESW0P117
0IC0disclosed04050120.txt?sequence=2

35
World Bank Report, 2014. Program Information Document. Lagos second state development
policy.http://wwwwds.worldbank.org/external/default/WDSContentServer/WDSP/IB/20
14/02/13/000414397_20140218094714/Rendered/INDEX/Lagos2PIDA

36
CHAPTER THREE
3.0 RESEARCH METHODOLOGY
3.1 INTRODUCTION
The entire focus of this chapter is on the research methods available and adopted in collecting data
and processing them in achieving the objectives of this research work. The target population of
the study and the technique of sampling employed is stated in this section. This aspect of the
research proposal will discuss the selected research instrument to be used in data collection and
its characteristics. This section also contains a summary of proposed statistical tools and methods
of data analyses.
The various methods adopted in this project work were selected considering a number of factors.
The most relevant factors involved the limitations involved in getting representative data to show
the revenue generation drive of the Lagos state government and the impact on its citizens amidst
other constraints including finance and time available to the researcher.
According to Kothari, (2004), “Research methodology is a way to systematically solve the
research problem. It may be understood as the science of studying how research is done
scientifically. In it we study the various steps that are generally adopted by a researcher in studying
his research problem along with the logic behind them”.
3.2 RESEARCH DESIGN
According to Sellitz et al. (as cited in Asika, 2010) “A research design is the arrangement of
conditions for collection and analysis of data in a manner that aims to combine relevance to the
research purpose with economy in procedure.”

37
Kothari, (2004), also stated, “The research design is the conceptual structure within which research
is conducted; it constitutes the blueprint for the collection, measurement and analysis of data. As
such the design includes an outline of what the researcher will do from writing the hypothesis and
its operational implications to the final analysis of data”.
This research is a non-experimental research based on survey design. It involves the gathering of
information to give a general overview of the revenue generation drive of government and the
impact on the citizens of Lagos state. This research design is based on population characteristics
and representative samples of the population. It is structured to obtain data using questionnaires
to give answers to the research questions and hypothesis stated in this study. Data used comprises
only data obtained from primary sources. The primary data was gathered using questionnaires
administered to the respondents. Survey method has the advantages of collecting a large volume
of data from a very large population at a relatively low cost (Abiola and Asiweh, 2012). A large
volume of data can be easily generated and analysed to give results that represent the population
of study. This makes the use of this method most appropriate in this study. The use of this method
had become more suitable given the geographical disparity of the area to be covered. According
to Sekaran and Bougie (2010), “Questionnaires are most useful as a data collection method,
especially when large numbers of people are to be reached in different geographical regions”. This
gives credence to the use of this methodology.
3.3 POPULATION OF STUDY
The target population of study is the total number of elements or attributes in our focus of interest.
From this population, samples are selected to gather data for analysis and interpretation. The focus
of this research work is on the eligible individual taxpayers and organisations in the Lagos state.
This includes workers in both the formal and informal sector. Those in the formal sectors are all
civil servants and or officers with their different salary level and proportionate tax rates e.g.
Teachers, Doctors, Accountants, all workers at the State and local government level. The informal

38
sector forms a large percentage of the working or taxable population of Lagos state. They include
all self-employed and their employees and or agents. The sample population for this study
consists of 5 Local Government Areas purposively selected out of the 20 Local Government
Areas in Lagos state, Nigeria being homogeneous and having no selection bias.
3.4 SAMPLING AND SAMPLING TECHNIQUE
The sampling technique is a function of the scope and the research design chosen for the study.
The sampling technique that was employed for this research project is the cluster sampling
technique. The choice of cluster sampling technique was taken after considering the fact that
respondents are scattered across the area of Lagos state. These groups will form clusters from
which samples will be selected. Fifty copies of questionnaires were administered to various
individuals of different ages, sex and educational backgrounds. The questionnaires were analysed
using the Likert Summated Rating scale.
3.5 SOURCES OF DATA AND RESEARCH INSTRUMENT
In the course of the research work, the researcher made use of both primary and secondary sources
of data. Primary data included oral interviews and questionnaires issued to respondents. Secondary
data were obtained for literature review and for analysis. Sources of secondary data include
textbooks, tax bills, newspaper articles, published journals, reports as well as statistics from the
Lagos state Treasury.
3.6 STATISTICAL TOOLS AND ANALYTICAL PROCEDURE
The statistical tools employed in analysis of data are focused on getting a deep understanding of
the sample via responses of the population. The data gathered for the study were subject to
descriptive and inferential statistics. The descriptive statistics involves the use of simple
percentage. The inferential statistics involves the use of Spearman’s Rank correlation which is to

39
show the direction of relationship between variable under the study and to show the scale for the
data which is interval.
Spearman’s Rank correlation:
Rs =
1−6 ∑ 𝑑 𝑖2
𝑛
𝑖=1
𝑛(𝑛2 −1)
Where ∑ 𝑑𝑖2
𝑛
𝑖=1 =∑ 𝑅(𝑋1
𝑛
𝑖=0 ) – R (𝑌1) 2
The DECISION RULE for the two sided hypothesis adopted in this study is to reject H0 at the
appropriate α level; if the computed Rs is greater than the critical α value corresponding to
1 -
α
2
.

40
REFERENCES
Abiola J. and Asiweh M. (2012). Impact of Tax Administration on Government Revenue in a
Developing Economy –A Case Study of Nigeria. International Journal of Business and
Social Science, Special Issue 3(8). Pp. 99-113.
Asika, N. (2010). Research Methodology in the Behavioural Sciences. Lagos, Longman Nigeria
Plc.
Sekaran, U. and Bougie, R. (2010) Research Methods for business: A skill building Approach (5th
ed.), West Sussex, UK. John Wiley & Sons Ltd.

41
CHAPTER FOUR
4.0 DATA PRESENTATION AND ANALYSIS
4.1 INTRODUCTION
This chapter deals with the presentation and analysis of collected data from the questionnaires
administered to respondents and the secondary data collected from available statistics from
journals, relevant publications and the World Wide Web.
In order to obtain accurate and reliable information for this project, the researcher adopted two
methods for data collection. These are questionnaire and statistical data. The questionnaire was
divided into sections. Section A consists of the respondents’ bio-data such as age, sex,
qualifications, positions etc. In section B, a tabular format was adopted for questions related to all
the objectives of the study. It was structured in columns, rows, and each column represents the
observed response while the rows are the variables. The secondary means of data collection was
through the statistical estimate of revenue within the period of seven years (2005-2011). This
method was adopted in order to get the revenue of the Lagos State Government.
Of the 50 copies of questionnaires administered, only 44 copies were validly completed and
returned by respondents. The questionnaires were administered over the local governments of
Yaba, Ibeju Lekki, Kosofe, Ikeja and Amuwo Odofin with ten questionnaires per local
government.
4.2 PRESENTATION AND ANALYSIS OF DATA
The data gathered for the study were subject to descriptive and inferential statistics. The
descriptive statistics involves the use of simple percentage. The inferential statistics involves the
use of Spearman’s Rank which is adopted to show the direction of relationship between the
variables under study and to show the scale for the data which is interval.

42
Spearman’s Rank Correlation:
Rs =
1−6 ∑ 𝑑 𝑖2
𝑛
𝑖=1
𝑛(𝑛2 −1)
Where ∑ 𝑑𝑖2
𝑛
𝑖=1 =∑ 𝑅(𝑋1
𝑛
𝑖=0 ) – R (𝑌1) 2
Where di = difference in each pair of ranks.
n= number of objects being ranked.
R is defined in such a way that when the ranks are in perfect agreement, R equals +1 and when
they are in perfect disagreement R equals -1.
X is the assumed independent variable.
Y is the assumed dependent variable.
4.21 ANALYSIS OF RESPONDENTS’ DATA
Table 1: Gender of the respondents
Gender Frequency Percentage
Valid
Percentage
Cumulative
Percentage
Male 24 54.5 54.5 54.5
Female 20 45.5 45.5 100.0
Total 44 100.0 100.0
Source: Field Survey, 2014
The table 1 above shows that 24 respondents are male and 20 respondents are female which
represents 54.5% and 45.5% respectively. The result shows that majority of the respondents are
male.

43
Table 2: Age of the respondents
Age Frequency Percentage
Valid
Percentage
Cumulative
Percentage
21-30 years 16 36.4 36.4 36.4
31-40 years 22 50.0 50.0 86.4
41-50 years 5 11.4 11.4 97.7
51-60 years 1 2.3 2.3 100.0
Total 44 100.0 100.0
Source: Field survey, 2014
The table 2 above shows that 16 respondents are between the age 21 and 30 which represents
36.4%, 22 respondents are between the age of 31 and 40 which represents 50%, 5 respondents are
between the age of 41 and 50 which represents 11.4% and 1 respondent is between the age 51 and
60 which represents 2.3%. The result shows that majority of the respondents are matured, between
the age of 31 and 40 years.
Table 3: Marital status of the respondents
Marital Status Frequency Percentage
Valid
Percentage
Cumulative
Percentage
Single 15 34.1 34.1 34.1
Married 29 65.9 65.9 100.0
Total 44 100.0 100.0

44
The table 3 above shows that 15 respondents are single which constitute 34.1% of the study while
29 respondents are married which constitutes 65.9% of the study. This result shows more married
people amongst the respondents.
Table 4: Rank/ Position of the respondents
Rank/ Position Frequency Percentage
Valid
Percentage
Cumulative
Percentage
Top management
Middle
management
14
15
31.8
34.1
31.8
34.1
31.8
65.9
Junior management 15 34.1 34.1 100.0
Total 44 100.0 100.0
The table 4 above shows that 14 respondents are top management level which represents 31.8%
while 15 respondents are middle management which represents 34.1% of the study and finally, 14
respondents are low level management which represents another 34.1%. The result shows that the
respondents are evenly distributed among the three management levels.

45
Table 5: Educational qualification of the respondents
Education/Qualification Frequency Percentage
Valid
Percentage
Cumulative
Percentage
HND/DEGREE 37 84.1 84.1 84.1
MASTERS/PHD 4 9.1 9.1 93.2
PROFESSIONALS 3 6.8 6.8 100.0
Total 44 100.0 100.0
The table 5 shows that 37 respondents have HND/DEGREE which represents 84.1%, 4
respondents have MASTERS/PHD which represents 9.1% and 3 respondents have Professional
qualification which represents 6.8%. The result shows that more of the respondents are
HND/DEGREE holders.
Table 6: Cognate Working Experience
Working
Experience Frequency Percentage
Valid
Percentage
Cumulative
Percentage
1 year- 5 years 13 29.5 29.5 29.5
6 years-10 years 20 45.5 45.5 75.0
11 years-15 yrs. 9 20.5 20.5 95.5
16 years-20 yrs. 1 2.3 2.3 97.7
Above 20 years 1 2.3 2.3 100.0
Total 44 100.0 100.0
Source: Field survey, 2014.

46
Table 6 above shows that 13 respondents have between 1 – 5 years working experience which
represents 29.5%. 20 respondents have between 6 – 10 years working experience, which represents
45.5%. 9 respondents have between 11 – 15 years working experience which represents 20.5%. 1
respondent has between 16 – 20 years working experience which represents 2.3% and 1 respondent
has above 20 years of working experience. The experiences gathered will enable the respondents
be a better judge for this study.
4.22 ANALYSIS ACCORDING TO RESEARCH QUESTIONS
Table 7: Lagos state government is doing enough to create awareness about the importance of
paying taxes
Description Frequency Percentage
Valid
Percentage
Cumulative
Percentage
A 10 22.7 22.7 22.7
SA 34 77.3 77.3 100.0
Total 44 100.0 100.0
The table 7 above shows that 44 respondents agreed which represents 100.0%. With the above
response, one can conclude that Lagos state government is doing enough to create awareness about
the importance of paying taxes.

47
Table 8: The level of infrastructural development has encouraged more people to pay their taxes.
Description Frequency Percentage Valid Percentage
Cumulative
Percentage
U 1 2.3 2.3 2.3
D 1 2.3 2.3 4.5
A 37 84.1 84.1 88.6
SA 5 11.4 11.4 100.0
Total 44 100.0 100.0
The table 8 above shows that 1 respondent was undecided which represents 2.3%, 1 respondent
disagreed which represents 2.3% and 42 respondents agreed which represents 95.5%. This
response implies that the level of infrastructural development has encouraged more people to pay
their taxes.

48
Table 9: Tax enforcement laws in Lagos state are adequate.
Valid
Percentage
Cumulative
Percentage
D 4 9.1 9.1 9.1
A 35 79.5 79.5 88.6
SA 5 11.4 11.4 100.0
Total 44 100.0 100.0
The table 9 above shows that 4 respondents disagreed which represents 9.1% and 40 respondents
agreed which represents 90.9%. This implies that tax enforcement laws in Lagos state are
adequate.

49
Table 10: There would be more infrastructural development in Lagos state if citizens pay their
taxes regularly.
Valid
Percentage
Cumulative
Percentage
U 1 2.3 2.3 2.3
SD 1 2.3 2.3 4.5
D 1 2.3 2.3 6.8
A 33 75.0 75.0 81.8
SA 8 18.2 18.2 100.0
Total 44 100.0 100.0
The table 10 above shows that 1 respondent was undecided which represents 2.3%, 2 respondents
response implies that there would be more infrastructural development in Lagos state if people
pay taxes adequately.

50
Table 11: The effect of revenue generation is rated on provision of social amenities.
Valid
Percentage
Cumulative
Percentage
D 2 4.5 4.5 4.5
A 29 65.9 65.9 70.5
SA 13 29.5 29.5 100.0
Total 44 100.0 100.0
agreed which represents 95.4%. This implies that the effect of revenue generation is rated on the
provision of social amenities.
Table 12: Non-Residents in Lagos state contribute to revenue generation
Valid
Percentage
Cumulative
Percentage
A 16 36.4 36.4 36.4
SA 28 63.6 63.6 100.0
Total 44 100.0 100.0

51
The table 12 above shows that 44 respondents agreed which represents 100.0%. This response
implies that non-residents in Lagos state also contribute to revenue generation.
Table 13: Lagos State is ahead of other states in the provision of basic infrastructures
Valid
Percentage
Cumulative
Percentage
U 1 2.3 2.3 2.3
D 1 2.3 2.3 4.5
A 10 22.7 22.7 27.3
SA 32 72.7 72.7 100.0
Total 44 100.0 100.0
The table 13 above shows that 1 respondent was undecided which represents 2.3%, 1 respondent
response implies that Lagos state is ahead of other states in the provision of basic infrastructure.

52
Table 14: The infrastructural development of Lagos state is as a result of effective and efficient
tax administration.
Description Frequency Percentage Valid Percentage
Cumulative
Percentage
D 2 4.5 4.5 4.5
A 34 77.3 77.3 81.8
SA 8 18.2 18.2 100.0
Total 44 100.0 100.0
agreed which represents 95.5%. This implies that the infrastructural development of Lagos state
is because of adequate revenue generation.

53
Table 15: Revenue generation agencies in Lagos state are efficient
Valid
Percentage
Cumulative
Percentage
SD 1 2.3 2.3 2.3
A 38 86.4 86.4 88.6
SA 5 11.4 11.4 100.0
Total 44 100.0 100.0
The table 15 above shows that 1 respondent disagreed which represents 2.3% and 43 respondents
agreed which represents 97.8%. This response implies that revenue generation agencies in Lagos
state are efficient.
Table 16: There exists a mutual obligation between the government and its citizens
Valid
Percentage
Cumulative
Percentage
A 34 77.3 77.3 77.3
SA 10 22.7 22.7 100.0
Total 44 100.0 100.0

54
The table 16 above shows that 44 respondents agreed which represents 100.0%. This implies that
citizens are aware that there is a mutual obligation between themselves and their government.
Table 17: The training of tax personnel has resulted in an effective tax administration
Valid
Percentage
Cumulative
Percentage
D 2 4.5 4.5 4.5
A 22 50.0 50.0 54.5
SA 20 45.5 45.5 100.0
Total 44 100.0 100.0
agreed which represents 95.5%. This response implies that the training of tax personnel has
resulted in an effective tax administration.

55
Table 18: Tax consultants increase the burden of tax on the citizens
Valid
Percentage
Cumulative
Percentage
U 1 2.3 2.3 2.3
SD 1 2.3 2.3 4.5
D 2 4.5 4.5 9.1
A 20 45.5 45.5 54.5
SA 20 45.5 45.5 100.0
Total 44 100.0 100.0
Source: Field Survey, 2014.
The table 18 above shows that 1 respondent was undecided which represents 2.3%, 3 respondents
response implies that the employment of tax consultants has increased the tax burden on the
citizens.
4.3 TEST OF HYPOTHESES
Having done the analysis of the responses received, the hypotheses stated in chapter one of this
study will be tested.
The hypotheses will be tested using the Spearman’s Rank correlation leading to the acceptance or
rejection of the null hypotheses.

56
4.31 TEST OF HYPOTHESIS ONE
H0: Effective and efficient tax administration has not increased Lagos state internally generated
revenue.
H1: Effective and efficient tax administration has increased Lagos state internally generated
revenue.
Nonparametric Correlation
Table 19 Correlations
Effective and
efficient tax
administration
Internally
generated
revenue.
Spearman's rho
Effective and
efficient tax
administration
correlation coefficient
1.000 .628**
sig. (2-tailed) . .000
N
44 44
Internally generated
revenue.
.628** 1.000
sig. (2-tailed) .000
N 44 44
** Correlation is significant at the 0.01 level (2-tailed).
Interpretation: rho = 0.628, N = 44 and P< 0.005 as shown on the table 4.4.1 above, we can
conclude that there is a positive relationship between hypothesis and accept the alternative

57
hypothesis and conclude that effective internal revenue generation leads to the development of
infrastructure.
4.32 TEST OF HYPOTHESIS TWO
H0: Increased revenue generation has not affected the economic well-being of Lagos state citizens.
H1: Increased revenue generation has affected the economic well-being of Lagos state citizens.
Nonparametric Correlations
Increased
revenue
generation
Economic well-
being of
citizens.
Spearman's rho Increased revenue
generation
correlation coefficient 1.000 .717**
N 44 44
Economic well-being of
citizens.
.717** 1.000
N 44 44
Interpretation: rho = 0.717, N = 44 and P< 0.005. As shown in the table above, we can conclude
that there is a positive relationship between increased revenue generation of the Lagos state
government and the economic wellbeing of the citizens in the state. Therefore, we reject the null

58
hypothesis, accept the alternative hypothesis, and conclude that the increase seen in the internally
generated revenue has resulted in positive wellbeing of the citizens of the state.
4.33 TEST OF HYPOTHESIS THREE
H0: Efficient and effective tax administration has not influenced infrastructural and economic
H1: Efficient and effective tax administration has influenced infrastructural and economic
Nonparametric Correlations
Effective and
efficient tax
administration
Infrastructural
development
Spearman's rho Effective and efficient
tax administration
correlation coefficient 1.000 .837**
N 44 44
Infrastructural
development
correlation coefficient .837** 1.000
N 44 44
Interpretation: rho = 0.837, N = 44 and P< 0.005. As shown on the table above, we can conclude
that there is a positive relationship between an effective and efficient tax administration and

59
increased infrastructural development. Therefore, we reject the null hypothesis and accept the
alternative hypothesis, concluding that the increase in infrastructural developments in Lagos state
is strongly attributable to increased revenue generation through effective and efficient tax
administration

60
CHAPTER FIVE
5.0 DISCUSSION OF FINDINGS, CONCLUSIONS AND RECOMMENDATIONS
5.1 INTRODUCTION
This chapter attempts to interpret and summarise the major findings of this research work based
on the tests carried out. The research questions at the beginning of this work are tested to determine
the degree and extent of reliability and validity of the findings from which conclusions are drawn
and recommendations are made.
5.2 DISCUSSION OF FINDINGS
The statistical analysis used in this study revealed that the effect of internal revenue generation
has led to major infrastructural development and provision of basic social amenities to the citizens
of Lagos state.
It was however observed that a fair number of non-residents who work in Lagos state add their
quota to revenue generation. The researcher also discovered that the infrastructural development
in Lagos state is because of adequate generated revenue and that revenue generation supports the
government in fulfilling its duties of securing lives and property and advancing the economic
wellbeing of the citizens of the state.
Furthermore, it was observed that Lagos state is ahead of other states in the provision of basic
infrastructures; this was largely attributed to an efficient and effective tax administration in place
in Lagos state amidst enabling laws and autonomy of tax authorities generating adequate internal
revenue.
However, the study brought to light the role played by tax consultants, with results suggesting that
the Lagos State Internal Revenue Service (LIRS) can be equipped to generate adequate revenue

61
by training of her staff and thus has no use for the tax consultants. This is seen in results suggesting
that the citizens perceive that the tax burden is increased with the use of tax consultants.
Findings from this study buttress the fiscal federalism theory adopted in this work. The
DECENTRALISATION THEOREM suggests that state and local governments, being closer to
the people, will be more responsive to the particular preferences of their constituencies and will
be able to find new and better ways to provide these services. This is evident in this research work,
as the Lagos State Government (LASG) has been able to respond to the needs of its citizens. The
CLUB THEOREM is also relevant here as on the one hand, the gains to an increased size of the
region (or the "club") arise from the larger number of people, over which the average cost of
service provision can be spread. Onthe other hand, efficiency losses from increased size of regions
arise from congestion. That is, when the number of people with whom the public good must be
shared increases, this reduces the quality of the good. In the case of Lagos state, although there is
a large population from which to generate revenue, the impact of the increased revenue is not
readily felt across the state as a number of people still disagree that the government has done
enough.
The efficiency and effectiveness of the tax administration in Lagos state is thus seen as a major
reason behind the increased internal revenue generation of the state and the state in fulfilling its
obligation to its citizens has attempted to impact on their lives with positive feedback from the
citizenry.
5.3 CONCLUSIONS
Given the very low starting level of Internally Generated Revenue (IGR) in 1999, the continuous
improvement in revenue collection since the return to democratic governance is not a suffic ient
proof of the efficiency of the revenue administration arrangements recently put in place. There
remains a significant scope to improve the performance of tax revenue. For example, the State of

62
Lagos does not draw much from its property tax base. While property taxes account for a
substantial share of municipal budgets around the world ranging from an average of 20 percent in
India, over 50 percent in many Canadian cities, and 70 percent in many cities in USA, property
tax rates in Lagos have been historically low. In 2008, actual collection from property tax was 2
percent of Internally Generated Revenue against the estimated potential of over 15 percent (World
Bank Review 2010). Results of property tax reforms, initiated in 2001 have remained elusive, at
least in part due to its poor implementation and administration. However, the Lagos State
Government (LASG) is committed to re-launch its original plan to improve property tax
collection, as the potential yield from this revenue source remains substantial in the medium term.
Although IGR has increased, it has also increased costs to entrepreneurs that still face a very
challenging overall environment for doing business in Lagos state. The sharp increases in IGR
achieved during the last decade exploited some lower and more visible taxpayers, and sustaining
this pace of growth has proved to be a challenge (World Bank Review, 2010).
Furthermore, tax collection costs remain high. In spite of the significant reforms undertaken by
the State Government, the Electronic Banking System of Revenue Cycle Management (EBS-
RCM) has raised questions regarding the level of its operating costs. The consultancy services cost
about 10 percent of total IGR collected. This represents a higher cost of collection than is typically
found in modern revenue administrations, where costs of collection of less than 3 percent are
common (World Bank Review, 2014). The percentage currently charged should be renegotiated
by the government downward, especially given that revenues are likely to continue to grow in the
medium term. Addressing the high collection costs will be critical to sustaining gains in revenue
collection. This will also require building the capacity of the Lagos State Board of Internal
Revenue to enable take-over of a number of functions currently performed by the consultants.

63
While Lagos State reduced its poverty headcount to 23% by 2010 (World Bank Review, 2014),
the lowest of any Nigerian State, this still implies that some 5 million Lagosians live below the
poverty line. Thus, the number of the poor in Lagos State are still high, and new poor migrants
continue to pour into the city. The widening of the tax net may affect some poorer Lagosians. The
Lagos State Government has prioritized the development of a culture of tax compliance that
includes bringing smaller taxpayers into the tax net. While this policy represents a continuation of
Lagos State’s program to solidify a culture of tax compliance on its territory, which has generally
brought positive dividends to poorer Lagosians, there is a possibility of a one-off negative impact
on some smaller taxpayers who currently work entirely in the informal sector.
5.4 RECOMMENDATIONS
Based on the study, the following actions are recommended:
i. Lagos state tax officials should be properly trained and equipped to take over the job of
the tax consultants. This would help to reduce the overall cost of tax collection and in turn
reduce the burden on tax payers.
ii. There should be clear-cut policies for tax administration to avoid duplicity of taxes
between the state government and the local government i.e double taxation.
iii. There should be wide spread public awareness on the tax administration process. Most of
the citizens are in the dark about the process. The tax administration process should be
made more transparent through enlightenment campaigns.
iv. The tax net should be broadened to include the informal sector of the Lagos economy. This
will involve recruiting of tax officials that are close to the people and are easuily relatable.

64
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