To ensure the growth of any federation, there must be equitable development at the local government level. Accordingly, local governments can not develop without revenue. This is why it is necessary for every government to have several sources of income.
Aside from the annual budget from which the federal/central government usually give out money to the every other units of the government, there are other sources of revenue for the local government. Some of this sources of revenue has already been touched in my article on the functions of Local Government here.
That notwithstanding, in this article, we will be looking at the sources of local government revenue with a bird eye view. In other words, i am going to give you comprehensive details on the sources of local government revenue and how it can be used to forster development.
In light of the above, i strongly advise you to keep reading this work if you really want to know the sources of local government revenue. Trust me; you are not going to regret reading this work.
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Table of Content
- 1 What is local government?
- 2 Source of local government revenue in Nigeria
- 2.1 1. Grants from the federal and state government in Nigeria
- 2.2 2. Special levies
- 2.3 3. Statutory allocation
- 2.4 4. Income from commercial ventures
- 2.5 5. Income from investments
- 2.6 6. Loan from the bank
- 2.7 7. Property and tenant rates
- 2.8 8. Court fines
- 2.9 9. Rates
- 2.10 10. Share from Value Added tax (VAT)
- 2.11 Wrapping up:
What is local government?
Local Government is the smallest unit of government in a federation. It is usually called “the government at the grassroot level” because, governance at this level is more closer to the masses than any other unit of the government.
In countries where local government system is practiced, local governments are usually autonomous from the federal or central government. An example of a country like this is Nigeria, though this autonomy is also limited to some extent.
In a federation, local government comprises the third (or sometimes fourth) tier of government, whereas in a unitary system, local government occupies the second or third tier of government.
Many scholars have postulated that the aim of local government system is to ensure equitable growth and development in a federation. More so, through the local government system, there is popular participation in government at the grassroot level.
Now that you understand the meaning of local government, it is pivotal to know the primary sources of local government revenue.
Source of local government revenue in Nigeria
Below are the major sources of local government revenue:
1. Grants from the federal and state government in Nigeria
One of the primary sources of local government revenue in Nigeria is grant from the federal and state governments. Grants are simply money given by the government or other organization for a particular purpose. It is important to note that grants are usually non-repayable funds, thus, the whenever grants are given to the local government, it is not expected to pay back the money at certain date or time.
Grants from the federal and state government is one of the major sources of income for the local government in Nigeria. Though the local government is not entitled to be given grants at any time. Usually, the local government has to request for the grant, stating what the money is to be used for, then the federal or state government will decide whether to offer the grant or not.
2. Special levies
Another source of local government revenue is the what is known as special levies. Special Levies are money raised when there is insufficient funds to pay for an expense/project that has not been budgeted for in the local government.
Whenever there is insufficient funds for running a project at the local government level, the local government can actually request for special levies from the public to complete the project.
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3. Statutory allocation
This is a very significant source of local government revenue in Nigeria. It simply means, revenue that the local government is entitled to, become it is stated in the law.
The federal character principle in the constitution of Nigeria, provides that local governments are to be given some particular amount of money from the country’s budget to ensure equitable development.
Thus, all the local governments in Nigeria are bound to receive a particular share from the country’s annual income. Where the federal government tries to denial and local government of this income, the local government can sue the federal government for this breach.
4. Income from commercial ventures
Local Government can also make money from commercial ventures. This is by providing goods and services involving commercial, financial and industrial aspects.
For example, some local government in Nigeria provide transpor services to the public, holiday resort, consultancy services etc. All these brings money to the government.
5. Income from investments
Investment is generally one of the best ways to generate more money. It is also one of the sources of local government revenue because the government can decide to invest in any sector of the economy that it deems to be profitable.
Alternatively, it can decide to partner with other commercial organizations or businesses with the aim of generating more money as profit.
6. Loan from the bank
Of course, local governments can also decide to collect loans from the bank to ensure the smooth running of its administration if it is needed. This is nothing different from the normal way citizens can go to commercial banks for loan in Nigeria.
So, unlike grants, the local government will be required to pay back this loan at a fixed date or time.
7. Property and tenant rates
As a way of ensuring development at the local level, the local government can collect rates for certain properties or house in developed parts of the local government. Thus, this is also one of the sources of local government revenue.
8. Court fines
At the local level of government, there is usually the customary court that is responsible handling certain matters of which it has the jurisdiction to handle. When judgements of the customary court requires that a party should pay fine, the money goes to the local government account. So, it is actually one good source of revenue for the local government. It is apparently one of the tentative ways the local government get more money.
Rates are also one of the significant sources of local government revenue in Nigeria. A rate is like tax levied on property owned by the local government.
In other words, they are money collected by the local government for the use of its property. Take for instance, money collected at motor parks, market places etc.
Simply put, VATs are taxs paid on the amount which the value of an article has been increased at each stage of its production. In Nigeria, the local government usually have a share from VAT. Conversely, it can be seen as one of the major sources of its revenue.
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Finally, this is where I am going to end on the sources of local government revenue. By way of conclusion, I must also emphasize the fact that the development of every nation largely depends on how the affairs of the local government are handled.
For this reason it is necessary to give the local government autonomy to generate its own revenue and manage it as it wants without any interference by any other unit of the government.
Hope this article was helpful? Let me know what you think about the sources of local government revenue explained above.
Edeh Samuel Chukwuemeka ChMC, is a Law Student and a Certified Mediator/Conciliator in Nigeria. He is also a Developer with knowledge in HTML, CSS, JS, PHP and React Native. Samuel is bent on changing the legal profession by building Web and Mobile Apps that will make legal research a lot easier.