Major Sources of Local Government Revenue in Nigeria
Funding of Local Government
Local governments in Nigeria have two main sources of revenue which may be described as (a) internal sources of revenue and (b) external source of revenue.
1. Internal Sources of Funding
Local governments generate some of their funds internally through the following sources:
- Local Rates
Local governments collect rates or fees on market stalls and motor parks. The cost of collecting these rates is usually higher than the revenue realized. Moreover, several other outfits such as the National Union of Road Transport Workers (NURTW) often compete with councils in the collection of these fees e.g. motor park fees.
- Property Tax
Property tax or tenement rate is paid annually by a property owner on his property. It is a major source of income to local governments. The problem is that the valuation of property and the machinery for collecting property tax are sometimes defective.
- Special Levies
Local governments sometimes impose special or development levies on taxable adults. These may take the form of market levy, education levy, etc. The important thing, however, is that such a levy must first be approved by the state government.
Local governments grant licences for dogs, bicycles, radio and television sets. But many of these fees have remained unchanged for years and are, to some extent unrealistically low. Thus, the revenue value is undermined by the cost of collection. In Nigeria, many local governments do not even bother to collect these fees perhaps because they are usually low.
- Court Fines
Court fines are normally paid into the coffers of local governments. But they are generally low.
- Liquor Licence
Sellers of alcoholic drinks (or beer parlours) are required to pay a certain tee for their operation.
- Commercial Activities
Local governments sometimes engage in commercial activities such as transportation. The profitability of such a business depends on the entrepreneurial ability of council officials. Unfortunately, people steeped in civil service practices are hardly business-oriented.
Some local councils engage in investments such as the purchase of shares and government bonds. Income realized from this source may augment local government funds.
Although local governments can generate income from these numerous sources, the problem in most cases is that the machinery for the collection of these revenues is generally inadequate and defective. The most unfortunate aspect of the problem is that many of these councils are not even in a position to generate enough revenue internally.
2. External Sources of Funding
Local governments have three main external sources of income. These are explained below.
- Grant Subvention
Local governments receive statutory allocation or subventions from the federal and state governments. In particular, they receive a share of the funds in the Federation Account which is paid into the State Joint Local Government Account.
The amount paid as subvention depends primarily on the revenue available to be shard among the three tiers of government. The state governments also give subvention to local governments. This is about 10 percent of the state’s internally generated revenue.
Statutory allocations, especially subvention from the Federation Account have become the major source of revenue for local councils in Nigeria. As a result of the almost total dependence on these grants, many local governments have failed to develop the local source of revenue.
Thus, councils are usually pained when the statutory allocations fall below expectation (for example, when there is a fall in the price. of crude oil or When deductions are made at source from their allocations by the federal or state government to offset some of their commitments).
- Loans and Advances
Local governments borrow money from commercial banks to execute certain specific projects. This is, however, subject to approval by the state government.
Local governments in the country are entitled to 35 percent of the Value Added Tax (VAT) collected by the Federal Government.