Transfers from national and state governments are typically a large source of revenues for municipal governments in developing countries. Such a dependency on national government funding has a serious impact on the credibility of the municipalities within its constituencies. It has been argued in chapter three of this study that there is a need for decentralization and devolution of national and state government power. It is absolutely vital that the municipalities also receive the proper tools and be given the opportunity to generate and administer themselves the funds required to finance their increased responsibilities. However, transfers from national governments can, if carefully implemented, be used to balance relative differences in revenues between rich and poor municipalities.
Local taxes can be either direct or indirect.
The latter have a tendency of being somewhat counter-effective as the private business sector often has to take the brunt of indirect taxes such as octroi, and sales, business, professions, signboard and patent tax. In the long run business would recover the taxes from the consumers and perhaps even relocate their businesses to other municipalities. Among the direct taxes, property taxation is the only one which is typically under the control of municipalities. Property tax revenues as a percentage of total municipal revenues in selected countries and some case-studies Traditionally property taxes have been high in anglophone countries. As central government funding will and should be getting increasingly scarce, municipalities will have to find other sources of revenues for their expenditures for the provision of infrastructure and services.