GOVERNMENT
REVENUE
THE ROLE OF THE GOVERNMENT
• Health facilities
• Education
• Finance and economic planning
• Defense (law and order)
• Social welfare
• Productive services
• Payment of debt of the Nation
• Administration
SOURCES OF REVENUE
• Taxation: process whereby Government impose financial charge and
other levies on tax payers (an individual in a legal entity).
A tax is the amount of money that is compulsorily levied from citizens
by government of a country. Tax is the main source of revenue to the
government, either direct or indirect tax.
• Non-tax sources:
Borrowing
Grants
Proceeds from state owned Enterprise
Rent, fees and licenses i.e dog, guns, drivers, etc.
TYPES OF GOVERNMENT
REVENUE
• RECURRENT RECEIPTS
These are the revenues that is generated from activities such as taxes,
royalties, rent, fees, which are received on periodic basis.
• CAPITAL RECEIPTS
Capital receipts include monies given to undertake projects such as
schools, roads, hospitals etc. they include loans received from local or
foreign company's or organizations.
TYPES OF GOVERNMENT EXPENDITURE
• CAPITAL EXPENDITURE
It refers to the expenditure that government made on projects whose
useful life are fir a long term. Schools, hospitals, bridges, roads, dams,
harbors, electricity, etc are items that once established takes longer
than before they get worked on or replaced.
• RECURRENT EXPENDITURE
Expenditure made by government which are routine in nature and
incurred regularly. Before it reoccurs, the government makes provision
to meet such activities. Examples are expenditure of security services
and payment of remuneration to government workforce.
DIRECT TAXES
This is a tax paid directly to the government by a person on
whom it is imposed. A direct tax is borne entirely by the entity
or person that pays it and cannot be passed on the peoples
income or wealth.
Examples are income taxes, corporate taxes, capital gain taxes,
basic taxes, property taxes etc.
TYPES OF DIRECT TAX
• Income tax: this is levied on the income of a person. It is imposed on wages or
salaries of workers.
• Property tax: levied on mostly immovable asset such as a building.
• Company tax: tax levied on the profit earned by a company for a period. In a
period of no profit nothing would be paid as company tax.
• Basic rate: it is imposed on matured resident of a particular area for the
development of the area. Rate charge differs from one area to another.
• Capital gain tax: tax charge for the profit gain in purchasing and depositing the
asset. An asset bought for 5K in 2007 and sold in 2009 for 7K. The would be
charged on the 2K difference after all expenses are deducted.
INDIRECT TAXES
These are taxes levied on commodities which are bought. As
one consumes or buys such a commodity, the person
automatically pays the tax.
The paying of these taxes depends on the commodities
consumed. This means that, the more purchase, the more tax
you would pay.
EXAMPLES OF INDIRECT TAXES
• Custom duties: tax levied on import and sometimes export by the custom
authorities of a country to raise state revenue and to protect domestic
industries from more efficient or predatory competitors from abroad.
• Import duties: import refers to the buying of goods from other countries. The
duty charges on the importation of goods from one country to another is known
as import duties. The duty is not fixed but depends on the value or cost of the
item.
• Excise duties: tax imposed on commodities manufactured and consumed locally
in a country.
• Export duties: duties paid on commodities leaving the country to another.
Charges are don according to the volume or values of the commodity exporting.
VALUE ADDED TAX (VAT)
This is a form of consumption tax. It is charged on the value added to the good or
service. It is a tax on the estimated market value added to a product or material
at each stage of distribution ultimately passed on to the consumer.
VAT applies to all provisions on goods and services.
The seller charges VAT to the buyer, and the seller pays VAT to the government.
However, if the purchaser is not a end user, but the goods are further processed
to another form or a value is added, the VAT is charged on the value added.
VAT has been criticized as a burden on consumers. Some say the poor pay more
than the rich because they consider it to be the regressive type of tax.
PURPOSE OF TAXATION
• To raise revenue.
• To redistribute income.
• To help reduce inflation.
• To control the intake or consumption of a particular product.
• To protect infant industries.
• To avoid dumping in the country.
• To correct the balance of payment deficits.
CLASSIFICATION OF TAX
• Proportional Tax: under this tax structure, same percentage is
charged to all tax payers not with reference to the income level.
Example, a 12% tax unit applies to all income earners.
• Regressive Tax: with this type of tax, the low income earners pay
more than the higher income earners. The tax percentage charged to
the low income earner is higher than the one charged for higher
income earners.
• Progressive Tax: this is a tax system whereby the amount of money
paid as tax increases proportionally as the person’s income increases.
PRINCIPLES/QUALITIES OF A GOOD TAX
• EQUITY: on principle that the rich must pay more than the poor.
• ECONOMIC: principle that a good tax system must have excess in money
collected than the amount of money spent in the collection.
• FLEXIBILITY: a tax system is flexibility if that system can easily adapt to changes
in the economy. Enough room should be given for changes.
• CERTAINTY: a situation where the tax payer knows the amount of amount of
money to be paid as tax, when and place of payment.
• CONSCIENCE: tax collected should not bring any hardship to the tax payer or
difficult to be collected by the tax collector. Therefore a reasonable period of
time should be given to the tax payer, the time of payment should be made
known etc.
• NO ADVERSE EFFECTS ON PRODUCTION: tax should not discourage producers
and employees. It should not be too high to demotivate entrepreneur to
produce more.
PROBLEMS OF TAXATION
• TAX EVASION: running away from tax. They do not make themselves
available to the tax collectors.
• IDENTIFICATION OF TAX PAYERS: difficult identifying and locating tax
payers.
• LACK OF RECORDS: records of tax payers are not usually made
available and this brings about difficulty in collection.
• DISBURSEMENT OF TAX REVENUE: some tax collectors do not record
the right figures
