Local government requires adequate funds in order to discharge their assigned duties effectively. The sources of revenue for local governments are as follows:
RATES: Rates are annual levies imposed on all ratable adults. Ratable adults are those who possess financial income, which enable them contribute to the maintenance of the local government. Normally, all taxable adults are qualified as ratepayers. There are two main types of rate, the general rate or poll tax and special rate.
General rate or poll tax is a fixed equal amount levied on all ratable adults. Generally, rates are paid annually. Special rate is a levy by the government for specific services. For instance, special levies could be imposed for education (education rate) or for water supply (water rate). All rates must be approved by the central government.
PROPERTY RATE: Property rate is a tax imposed on the owners of private building and tenement. Property rate is based on the evaluated amount of the property. Consequently, property rate is fixed after professionally competent evaluation officer have assessed the property and determined its current worth. Property rate, which is a revenue source only for urban or semi-urban councils, yields a lot of money to the local government if properly managed.
FEES: Fees are charged on services, which the local government renders to people. Local government charges fees on market stalls; lock up stores and motor parks. It charges fees on slaughter houses. Fees are also charged on registration of birth, death and marriages.
Fees are charged on variety of licenses such as radio and television licenses, license for wheelbarrow, canoes and carts. Local government charges fees for licenses for bakeries, sale of liquor, restaurants and public eating places.
FINES: Fines are charges imposed on individuals for breaking bye-laws. Local governments are empowered to make bye-law and provide penalties for their violation. When an individual violate a bye-law, they are taken to court where they are forced to pay fines.
In some countries local government have courts for the punishment of offenders of their laws, e.g. customary court or native authority courts. An example of a fine is the money which an individual pays for violating the bye-law on street trading or bye-law on environmental sanitation.
PROFITS AND EARNINGS: Local governments are empowered to take commercial ventures and make profits, which constitute an important part of their income. Profits can be made from transport services or from sales of goods. Local government can also earn money from small-scale industries or agricultural establishments. They can rent house or land out to individuals and earn money from it.
GRANTS: Grants are money given annually by the state or central government in aid of local government to enable them discharges their responsibility effectively. There are four types of grants. The first is general grants, also called block grants. The general grant is a specific amount paid annually to local governments based on their population. The general grant is paid to finance the recurrent expenditure o local government.
The second form of grant is special grant; the special grants are made to meet the cost of particular service of national importance such as education, health and agriculture. The third is matching grants; a matching grant is a form of grant through which government helps local government that helps themselves.
The government establishes a policy which sets out the percentage of aid it would give to local governments that embark on specified priority projects like education, health, agriculture and roads. This can range from 30% to 80% based on the actual expenditure incurred on a particular project by the local government.
This type of grant which also called percentage grant motivates local government to embark on development projects of government priority. The fourth type of grant is equalization grant. Equalization grants are made for poor and under developed local government to enable them catch up with rich and developed local government.
STATUTORY SHARE OF CENTRAL GOVERNMENT REVENUE:
A recent development in Nigeria is that the Revenue Allocation Act provides a share for local government out of both the federation account and the state account revenue. For instance in Nigeria under the Revenue Allocation Act of 1981, local governments have a 10% share of the federation account and in addition 10% of the state government revenue.
This statutory share of state and central government revenue is intended to replace grants, which are not mandatory for the state and central governments. The payment of statutory share of government revenue is mandatory for state and central governments.
GIFT AND DONATIONS: Individuals, groups and organizations can give donations or gift to local governments. In Nigeria, some local governments organize launching of specific projects. Money realized at such launching is also donation.
LOAN: Local governments are empowered to raise loans from the banks or governments to finance capital projects. For instance, local government can raise loans in order to finance market development.