Fiscal Federalism, Governance and Internally Generated Revenue: Examining Weak Subnational Finances in Nigerian States

One of the most crucial challenges to Nigeria’s ailing fiscal federalism is the inability of states to raise, retain and manage revenue. Revenue bases at both national and sub national levels are small, volatile and monolithic. But it seems Nigeria suffers the most at its subnational levels. Sub national governments in the country perennially complain of lean resource base relative to their huge fiscal responsibilities. Interestingly, while a lot has been written about intergovernmental fiscal relations and the need for improved allocation to states and Local Governments from the Federation account, not much attention is paid to the management of available funds in states across the country, nor the perpetual inability of states to tap into available resource base through improving their internally generated revenues. This is particularly so for the group of five states in South East Nigeria; which though with some of the best potentials in the country, continue to rely exclusively on the federation account. Beginning with an evaluation of selected indicators of fiscal health, this study examines challenges facing internally generated revenue and taxation system in these states. It argues for closer interaction between government and the private sector to jointly develop industries that will form the base for internally generated revenue.