How to cite an unpublished internal (academic) report
You did not mention who is the author of this report - you or someone else? 

Option a): Someone else:
If you are using it, you should cite it - like e.g. a personal conversation or else which should be cited. But maybe it would be appropriate to write the paper together if your fields are so close. For the reviewers (and readers) it would be crucial to re-phrase all relevant content of the report because otherwise the text is worthless. (see Should you cite somebody&#39;s Transfer Report? (Confirmation Report)? for other thoughts on this topic)

Option b): Your text:
Since the proposal was written by you, there is no harm in using the material in any section of the journal. You are not violating any copyright and it is not self-plagiarism since it was not published before. 

If you want to cite it just to save some space, then please refer to the remark about re-phrasing the content above - the journal paper must be self-contained and fully understandable / reproducible and just citing it will not help.