PAHS 401 Public Finance: Session 5 - Government Revenue

PAHS 401
PUBLIC FINANCE
Session 5 – Government Revenue
Lecturer: Dr. Emmanuel Y M Seidu, UGBS

Contact Information: eymseidu@ug.edu,gh/seidu.mahama9@gmail.com
Session Overview
Lesson Objectives:
By the end of this session you should be able to:
• Explain the meaning of government/public revenue
• Distinguish between tax-revenue and non-tax revenue
• Understand the various revenues sources available to
government
Dr Emmanuel Y M Seidu Slide 2

Reading List
• Rosen, H. S. & Gayer T. (2010). Public Finance. (9th Edition), McGraw-Hill
International Edition. Chapter 14, 19 & 21 (pages 302-326, 438-459, 477-
501)
• Mikesell, J. (2013). Fiscal Administration: Analysis and Applications for the

Public Sector, Pacific Groves, California: Brooks/Cole Publishing Company.
Chapter 10 & 12 (page 343-483)
• Abdallah, A, & Addo S., (2007). Public Sector Economics and Finance. Black
Mask Limited. Chapter 7 (pages 102, 149-181)
• Stiglitz J. E.,& Rosengard, J., K., (2015). Economics of the Public Sector, (4th
Edition), New York: W.W. Norton & Company, Inc. Part 1 (page 47-57)
• Bhatia, H. L. (2008). Public Finance. (26th Edition), Jangpura. Chapter 4

(page 35-51)

Topic One
GOVERNMENT REVENUE

Government Revenue
 Like any other economic unit, a government needs funds to
finance it activities.
 Such funds are raised from various sources.
 It is difficult to give a complete list of all the sources of
public receipts.
 But the important ones include taxes, income from

currency, market borrowings, sale of public assets, income
from public undertakings, fees, fines, gifts and donation.
 It is a normal practice with a government to divide its

receipts into ‘revenue’ and ‘capital’ categories.
Government Revenue
 Broadly speaking, revenue receipts include ‘routine’ and

‘earned’ ones.
 For this reason, they do not include borrowings and

recovery of loans from other parties, but they do include
tax receipts, donations grants, fees, fines, etc.
 Capital receipts, on the other hand, cover those items which

are basically of non-repetitive and non-routine variety and
changing government’s financial liabilities/assets.

Revenue Receipts
 These receipts are divided into tax-revenue and non-tax
revenue.
 Tax-revenue itself is divided into three sections:
a. Taxes on income and expenditure: This section covers all
those taxes which are levied on receipts of income and
expenditures such as corporation tax, income tax, and
similar other taxes, if any in force.
b. Taxes on property and capital transaction: This section

covers taxes on specific forms of wealth and its transfers
such as estate duty, wealth tax, gift tax, house tax, land
revenue, stamps and registration fees, etc.
Revenue Receipts
c. Taxes on commodities and services: This section includes

taxes on production, sale, purchase transport, storage and
consumption of goods and services.
 Alternatively taxes may be divided into direct and indirect
ones
Non-tax revenue of the government is divided into 3 sections:

a. Currency, coinage and mint: This category covers the
receipts of Currency Note, Bank Notes, and Security Paper.
Profit from circulation of small coins is also included.
Revenue Receipts
b. Interest receipts, dividends and profits: This section

comprises apart from interest receipts on loans by the
government to other parties, dividends, and profits from public
sector undertakings run by or as government departments.
c. Other non-tax revenue: This section covers revenue from

various government activities and services such as from
administrative services, public service commission, police,
agriculture and allied services, transport and communication,
public works, education, housing, grant-in-aid and
contributions etc.

Capital Receipts
 Capital receipts of the government take many forms.
 The most important one comes from fresh borrowings which can
be classified in terms of their origin and maturity etc.
 For example, on the basis of their origin, public borrowing may

be external (i.e. from outside the country), or internal (i.e. from
within the country).
 In terms of maturity, there may be non-terminal or perpetuities),
‘‘long term’’, ‘‘medium term’’, or ‘‘short term’’ loans with specific
demarcation of boundaries for each.
 They may be marketable or non-marketable, interest-free or
interest bearing, etc.
Capital Receipts
• The next category of receipts covers recovery of loans due
from debtors to the government. Some capital receipts
may be in the form of grants and donations, deposits and
appropriations to various funds and so on.

Alternative Sources of Revenue to
Government
 Although the main sources of revenue to government is
from taxation, there are other sources of revenue to
government which need to be explained.
 These sources of revenue to government include:
 User fees and licenses;
 User charges;
 Engaging in directly productive activities;
 Debt finance;
 Donations; and
 Government-induced inflation

Government
User Fees and Licenses

 User fees are payments for goods or services sold or rented
by the government, voluntarily purchased and not generally
shared.
 They include highway tolls, public parking, spaces, fees
from use of government land and permits and licenses not
associated with regulation.
 A license is a fee levied by government as a condition for
exercising of a business or non-business privilege. It is
usually a flat rate and is graduated by the type of activity.
These include vehicle examination licenses, licenses issued
by the Food and Drugs Authority.
Government
User Charges
 These are ‘prices’ charged for voluntarily purchased,
publicly provided items or services that, while benefitting
specific individuals or businesses are closely associated
with basic government responsibilities.
 Examples of user charges include charges paid for waste

disposal, airport landing (departure fees), ambulance
charges, health insurance premium.

Government
Engaging in Productive Activities

 Government in some instances engage in some productive
activities and the profits accruing to such operations accrue
to the government.
 One such area is lotteries, operated by the National
Lotteries Authority (NLA).
 Government also invests in businesses by owning shares in
such businesses and the dividends accruing forms part of
government revenue.

Government
Debt Finance
 This refers to the use of borrowed funds to finance
government expenditures and activities.
 The borrowing could be from internal or external sources
and those who loan funds to the government do so at their
own free will.
 The internal or domestic borrowing entails the government
issuing bonds, treasury bills and so on, which embodies the
promise of the government to repay the loan with interest
at some future date.
Government
Donations
 These are voluntary contributions to governments that are
made by individuals, organizations, governments of other
countries, as well as non-governmental organizations.
 Such projects are usually meant for specific projects or

particular programmes, for example to aid victims of a
natural disaster like donations to NADMO to assist flood
victims.

Government
Government–induced inflation
 This refers to expansion in the money supply in the
economy geared towards the payment for government-
supplied goods and services, leading to sustained annual
increase in prices.
 The idea being that this will lead to inflation and cause
people to reduce their spending and savings thus allowing
for reallocation of resources by government to public use
for long periods.
Government Revenue
Activity
 Identify an example each of the various sources of revenue

of the government of Ghana.

SUMMARY
In this Session, you have learnt that

• Government receives revenue from various sources
• Government revenue can grouped into revenue and
capital receipts
• Government revenue may either be tax revenue or non-
tax revenue.
• Apart from tax, government obtains revenue from other
alternative sources.

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PAHS 401

Session 5 – Government Revenue

Lecturer: Dr. Emmanuel Y M Seidu, UGBS

Dr Emmanuel Y M Seidu Slide 2

• Mikesell, J. (2013). Fiscal Administration: Analysis and Applications for the

• Bhatia, H. L. (2008). Public Finance. (26th Edition), Jangpura. Chapter 4

Dr Emmanuel Y M Seidu Slide 3

Dr Emmanuel Y M Seidu Slide 4

 But the important ones include taxes, income from

 It is a normal practice with a government to divide its

 Broadly speaking, revenue receipts include ‘routine’ and

 For this reason, they do not include borrowings and

 Capital receipts, on the other hand, cover those items which

Dr Emmanuel Y M Seidu Slide 6

b. Taxes on property and capital transaction: This section

c. Taxes on commodities and services: This section includes

Non-tax revenue of the government is divided into 3 sections:

b. Interest receipts, dividends and profits: This section

c. Other non-tax revenue: This section covers revenue from

Dr Emmanuel Y M Seidu Slide 9

 For example, on the basis of their origin, public borrowing may

Dr Emmanuel Y M Seidu Slide 11

Dr Emmanuel Y M Seidu Slide 12

User Fees and Licenses

 Examples of user charges include charges paid for waste

Dr Emmanuel Y M Seidu Slide 14

Engaging in Productive Activities

Dr Emmanuel Y M Seidu Slide 15

 Such projects are usually meant for specific projects or

Dr Emmanuel Y M Seidu Slide 17

 Identify an example each of the various sources of revenue

Dr Emmanuel Y M Seidu Slide 19

In this Session, you have learnt that

Dr Emmanuel Y M Seidu Slide 20

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