Top 10 Main Sources of Local Government Revenue in Nigeria


Top 10 Main Sources of Local Government Revenue in Nigeria

Local government is a generic term for the lowest tiers of public administration within a particular sovereign state. This particular usage of the word government refers specifically to a level of administration that is both geographically-localized and has limited powers (Wikipedia).

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 grass-root level.

In this post, we shall reveal major sources of revenue for these local government areas or better still how they make their money to run their various administrative duties. Please note that just recently, the court dismissed the powers of the state governors to remove an elected local government chairman and his principal officers. 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

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 are 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 what is known as special levies. Special Levies are money raised when there is an insufficient fund to pay for an expense/project that has not been budgeted for in the local government. Whenever there are 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.

3. Statutory allocations

The Nigerian constitution stipulates that the revenue of the federation shall be shared between the three tiers of government, i.e. the federal, state and local governments. A local government can obtain loans from financial institutions to enable them to finance development projects such as water supply, rural electricity, and construction of roads and provision of health facilities.


4. Income from investments

Local governments derive revenue by investing their money in profit yielding economic ventures such as buying of shares, entering into partnership with viable commercial organizations, and financing economic projects that could provide good revenue in return.


5. 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.

6. 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 judgments of the customary court require 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 gets more money.

7. Rates

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.

8. Share from Value Added tax (VAT)

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 has a share from VAT. Conversely, it can be seen as one of the major sources of its revenue.

9. 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 provides transport services to the public, holiday resort, consultancy services etc. All these bring money to the government.

10. Personal income tax

Local government councils collect income taxes from no salary earners, keep some percentage of what is collected, and pay the balance to the state government. Salary earners are excluded from payment of personal income tax as a result of the PAY AS YOU EARN (P.A.Y.E.) system, in which their taxes are deducted at source by their employers and paid directly to government.


In conclusion, 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.

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