10 Major Sources of Revenue for Local Government in Nigeria
Local governments in Nigeria rely on various sources of revenue to fund their operations and provide essential services to their communities. From taxes to statutory allocations and special grants, these revenue sources play a critical role in ensuring that local governments can meet their financial obligations and deliver on their mandates.
While the Nigerian economy has experienced its fair share of challenges in recent years, local governments have continued to explore new revenue streams and optimize existing ones to maintain their financial stability. In this article, we will take a closer look at the top 10 major sources of revenue for local governments in Nigeria, highlighting their contribution to the economy and the challenges they face in generating revenue.
OVERVIEW OF LOCAL GOVERNMENT REVENUE IN NIGERIA
Local governments in Nigeria are responsible for providing essential services to their communities, such as healthcare, education, and infrastructure. To fund these services, local governments rely on a variety of revenue sources, including taxes, fees, grants, and transfers from higher levels of government.
One of the primary sources of revenue for local governments in Nigeria is internally generated revenue (IGR). This includes taxes on businesses and individuals, as well as fees for services such as building permits and waste disposal. In recent years, many local governments have made efforts to improve their IGR collection, through measures such as tax audits and the use of technology to streamline payment processes.
In addition to IGR, local governments also receive revenue from the federal and state governments. This includes grants for specific projects, as well as transfers of funds to support general operations. However, the amount of revenue that local governments receive from higher levels of government can vary widely, and is often subject to political factors.
Other sources of revenue for local governments in Nigeria include fees for licenses and permits, as well as revenue from natural resources such as oil and gas. However, these sources of revenue are often subject to volatility, and may not be reliable in the long term.
Overall, local government revenue in Nigeria is an important component of the country’s economy, and is essential for providing basic services to communities. While there are challenges to ensuring a stable and sustainable revenue base, local governments continue to explore new strategies for generating revenue and improving service delivery.
TOP 10 MAJOR SOURCES OF REVENUE FOR LOCAL GOVERNMENT IN NIGERIA
Here are the main sources by which local government in Nigeria get their revenue to function.
INTERNALLY GENERATED REVENUE
Internally Generated Revenue (IGR) is the revenue generated by the Local Government from sources within its jurisdiction. It is the second-largest source of revenue for Local Governments in Nigeria, after statutory allocations from the Federation Account.
The IGR of Local Governments in Nigeria is derived from various sources, including:
- Taxes on businesses and individuals
- Licensing of commercial activities
- Property rates and land use charges
- Levies on markets and motor parks
- Permits and fees on construction and development
The level of IGR generated by Local Governments in Nigeria varies widely, with some Local Governments generating significantly more revenue than others. Factors that influence the level of IGR generated include the size of the Local Government, the level of economic activity within the Local Government, and the efficiency of revenue collection.
Efforts have been made by some Local Governments to improve their IGR collection through the use of technology and the implementation of more efficient revenue collection systems. However, there is still much room for improvement, and many Local Governments in Nigeria continue to struggle with low levels of IGR.
STATUTORY ALLOCATION FROM THE FEDERATION ACCOUNT
Local governments in Nigeria receive a significant portion of their revenue from the Federation Account. The Federation Account is the pool of funds created by the Nigerian government to redistribute revenue from oil and gas exports to the federal, state, and local governments. The statutory allocation from the Federation Account is the share of the revenue that is allocated to local governments by law.
The allocation is made based on a formula that takes into account several factors, including population, land area, and revenue generation capacity. The allocation is distributed monthly, and local governments are required to use the funds for specific purposes, such as payment of salaries and pensions, provision of basic infrastructure, and maintenance of law and order.
While the statutory allocation from the Federation Account is a major source of revenue for local governments in Nigeria, it has been criticized for being inadequate and unreliable. The allocation is often delayed or reduced due to fluctuations in oil prices and production, which can have a significant impact on the finances of local governments.
Despite these challenges, the statutory allocation from the Federation Account remains a critical source of revenue for local governments in Nigeria. It provides a steady stream of income that can be used to support the provision of essential services and infrastructure, and it helps to ensure that local governments are able to meet their obligations to their citizens.
VALUE ADDED TAX (VAT)
Value Added Tax (VAT) is one of the major sources of revenue for the local government in Nigeria. VAT is a consumption tax that is charged on the value added to goods and services at each stage of production and distribution. The tax is ultimately borne by the final consumer of the goods or services.
VAT was introduced in Nigeria in 1993 to replace the sales tax. The tax is administered by the Federal Inland Revenue Service (FIRS) but the revenue generated from VAT is shared among the three tiers of government in Nigeria – federal, state, and local government. The local government gets 35% of the VAT revenue.
The VAT rate in Nigeria is currently 7.5%. This means that for every N100 worth of goods or services sold, N7.5 goes to the government as VAT. VAT is a very important source of revenue for the local government in Nigeria as it is easy to administer and does not require a lot of resources to collect.
Tenement rates are a major source of revenue for local governments in Nigeria. These rates are taxes levied on property owners based on the value of their properties. The revenue generated from tenement rates is used to fund various local government projects and services.
The rates are usually calculated based on the annual rental value of a property. Property owners are required to pay these rates annually, and failure to do so can result in penalties and legal action.
The collection of tenement rates is usually the responsibility of the local government council. The council is responsible for determining the rates and ensuring that they are collected in a timely and efficient manner. The rates collected are then used to fund various local government projects and services, such as road construction, waste management, and healthcare.
In recent years, there have been efforts to reform the tenement rate system in Nigeria. This includes the use of technology to improve the collection process and the introduction of new regulations to ensure that property owners pay their fair share.
Overall, tenement rates remain an important source of revenue for local governments in Nigeria. By ensuring that property owners pay their fair share, local governments are able to fund important projects and services that benefit their communities.
FINES AND PENALTIES
Local governments in Nigeria generate revenue through fines and penalties imposed on individuals and organizations that violate laws and regulations. These fines and penalties can be imposed for a wide range of offenses, including traffic violations, environmental violations, and building code violations.
The amount of revenue generated from fines and penalties varies depending on the severity of the offense and the number of violations. For example, a single traffic violation may result in a small fine, while a company that repeatedly violates environmental regulations may face significant penalties.
Local governments in Nigeria have the authority to enforce fines and penalties and collect revenue generated from them. This revenue is often used to fund local government projects and services, such as road maintenance, waste management, and public safety.
GRANTS FROM STATE AND FEDERAL GOVERNMENT
One of the major sources of revenue for local governments in Nigeria is grants from the state and federal government. These grants are usually given to local governments to help them carry out specific projects or programs that are in line with the state or federal government’s development agenda.
The grants from the state government are usually given to local governments based on certain criteria such as population, land area, and internally generated revenue. The federal government also gives grants to local governments, especially for projects that have national significance such as road construction, water supply, and healthcare.
Local governments can also access grants from international development partners such as the World Bank, United Nations Development Programme, and the African Development Bank. These grants are usually given to support specific projects such as education, health, and agriculture.
Grants from the state and federal government are usually disbursed through the Joint Account Allocation Committee (JAAC) which is made up of representatives from the state and local governments. The JAAC meets periodically to allocate funds to local governments based on certain criteria such as the number of projects completed, the level of compliance with financial regulations, and the level of internally generated revenue.
However, it is important to note that grants from the state and federal government are not always guaranteed as they are subject to the availability of funds and the discretion of the government. Local governments are encouraged to diversify their revenue sources to reduce their dependence on grants from the state and federal government.
RENT FROM GOVERNMENT-OWNED PROPERTIES
Local governments in Nigeria generate revenue from various sources, and one of the significant sources is rent from government-owned properties. These properties include government buildings, offices, and lands that are leased out to individuals, organizations, or businesses for commercial or residential purposes.
Local governments have the power to regulate and collect rent from these properties. They also have the responsibility of maintaining and repairing the properties to ensure they are safe and habitable for tenants.
The revenue generated from rent varies from state to state and depends on the number and type of government-owned properties available for lease. Some states generate more revenue from rent than others, depending on the location and demand for properties in the area.
Local governments use the revenue generated from rent to fund various projects and programs, including infrastructure development, healthcare, education, and social welfare programs. The revenue also helps to boost the local economy by creating employment opportunities and stimulating economic growth.
Overall, rent from government-owned properties is a significant source of revenue for local governments in Nigeria. It provides a steady stream of income that can be used to fund various projects and programs that benefit the local community.
INVESTMENT AND CAPITAL RECEIPTS
Local governments in Nigeria generate significant revenue from investment and capital receipts. These receipts come from various sources, including:
- Dividends from investments in government-owned corporations
- Proceeds from the sale of government-owned assets
- Grants from the federal government for specific capital projects
- Loans from financial institutions
Investment and capital receipts are crucial sources of revenue for local governments in Nigeria. They provide the funds needed to finance capital projects, such as the construction of roads, bridges, and public buildings, which are essential for economic growth and development.
Local governments in Nigeria also invest in profitable ventures such as agriculture, tourism, and real estate to generate revenue. These investments not only provide a source of income for the government but also create job opportunities for the citizens.
However, investment and capital receipts are subject to market fluctuations and economic downturns, which can affect the revenue generated. Therefore, local governments need to manage their investments and capital receipts prudently to ensure a sustainable source of revenue.
FEES AND LEVIES
Local governments in Nigeria generate revenue through various fees and levies imposed on residents and businesses within their jurisdiction. These fees and levies are often collected on a regular basis and can vary depending on the type of entity being taxed.
Some common fees and levies include property tax, business premises permit, signage permit, market stall fees, and environmental sanitation fees. Property tax is a major source of revenue for local governments, and it is usually assessed based on the value of the property. Business premises permit is a fee charged to businesses operating within the local government area, and it is usually renewed annually.
Signage permit is a fee charged to businesses for the placement of advertising signs and billboards. Market stall fees are charged to traders who operate in local markets, while environmental sanitation fees are charged to property owners for the collection and disposal of waste within the local government area.
Local governments also generate revenue through other fees and levies, such as building permit fees, land use charges, and motor park levies. Building permit fees are charged to property owners for the construction or renovation of buildings, while land use charges are levied on property owners based on the use of the land.
Motor park levies are fees charged to commercial transport operators for the use of motor parks and terminals within the local government area. These fees and levies are important sources of revenue for local governments in Nigeria, and they are used to fund various projects and services that benefit the community.
Special grants are a significant source of revenue for local governments in Nigeria. These grants are provided by the federal government to support specific projects or programs in the local government areas. The grants are usually given based on the needs and priorities of the local government areas.
The special grants are often used to fund projects such as the construction of roads, bridges, and other infrastructure projects. They are also used to support social welfare programs, such as healthcare and education initiatives. The grants are usually disbursed through the State Joint Local Government Account (SJLGA) and are subject to strict guidelines and regulations.
In recent years, the federal government has increased its allocation of special grants to local governments in Nigeria. This has helped to support the development of infrastructure and social welfare programs in the local government areas. However, there have been concerns about the transparency and accountability of the allocation and disbursement of these grants.
Despite these concerns, special grants remain a crucial source of revenue for local governments in Nigeria. They provide much-needed funding for important projects and programs that benefit the local communities. Local governments must ensure that these grants are used effectively and efficiently to achieve their intended objectives.