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CHAPTER ONE

INTRODUCTION

BACKGROUND OF THE STUDY

Nigeria’s economic and political fortunes hang on a notoriously precarious but potentially advantageous fiscal federalist system. The system is made up of four cardinal component parts: the Federal Government, 36 state Governments, the Federal Capital territory, Abuja and 774 Local Governments. At least in theory, Nigeria operates on the principle of federalism with three tiers of government among which the constitution allocates varying revenue generation and spending powers.The increasing cost of running government coupled with dwindling revenue has left various state governments in Nigeria with formulating strategies to improve the revenue base. More so, the near collapse of the National Economy has created serious financial stress for all tiers of government. Hardest hit are the state governments all of whom have experienced unusual reduction in their share of the National Revenue from the Federation Account. Despite the numerous sources of revenue available to the various tiers of government as specified in the Nigeria 1999 Constitution, since the 1970s till now, over 80% of the annual revenue of the three tiers of government come from petroleum.

However, with declining global oil prices putting increasing pressure on states to explore alternative ways to shore up their revenue earnings, only 11 of Nigeria’s 36 states improved their internally generated revenue (IGR) in 2015. The latest IGR report shows that Ogun, Anambra, Borno, Edo, Bauchi, Abia, Kogi, Nasarawa, Niger, Taraba and Sokoto as the only states that bettered their 2014 records of revenue generation performance in 2015. Among the 24 states that performed poorly included Kwara, Imo, Bayelsa, Adamawa, Akwa Ibom, Benue, Cross River, Delta, Ekiti, Enugu, Gombe, Jigawa, Kaduna, Kano, Katsina, Kebbi, Lagos, Ondo, Osun, Oyo, Plateau, Rivers, Yobe, and Zamfara. And Ebonyi. Overall performance of the 36 states showed that the total IGR realized for the year dropped by 3.69 per cent, from N707.86 billion in 2014 to N682.67 billion. (NBS, 2016)

The need for state and local governments to generate adequate revenue from internal sources has therefore become a matter of extreme urgency and importance. 

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