GOVERNMENT REVENUE

(TAXATION)
Concept of Government Revenue
Public revenue refers to the total income that accrues to all levels of
administration/government from various sources.

This is usually grouped under the capital revenue and recurrent revenue.

Capital revenue includes irregular or extraordinary sources used for meeting heavy
capital projects. They come from grants, recovered funds, loans and transfer from
current revenue.

Recurrent revenue is a regular source in which income is received on a consistent

basis such as taxes, fees and licenses, rents from government landed properties,
income from government owned enterprises, proceeds from sale of government
assets and properties, fines and interest on loans.
 Tax and Taxation
What is a Tax?
• A tax is a compulsory financial charge imposed on a
taxpayer by a governmental organization in order to
fund government spending and other public
expenditures.
What’s Taxation?
• Taxation refers to the practice of a government
collecting money from its citizens to pay for public
services.
A tax has two elements:
• The tax base: The item or object that is taxed. These
include personal income, property and goods for
sale.
• The tax rate: The ratio at which a business or person
is taxed. It could be expressed as a percentage (%) or
a flat rate (currency e.g. $)
 Why is Taxation important?
It’s aims include - resource allocation, income redistribution, and economic
stability as well as economic growth and development and more.

Taxes help provide infrastructure such as roads, bridges and legal tender,
and public services such as police, hospitals and schools.

Taxes also help build the nation as a whole, and help improve on public
services such as healthcare and education for all the citizens that reside in
that country.
 Functions of
• It is used to raise revenue that the
Taxation
government can spend on things like
defense, social amenities, maintenance of law
and order, infrastructure, etc.
• It redistributes income by imposing higher
tax rates on those who earn higher incomes,
and lower tax rates on those with lower
incomes.
• It reduces the consumption and production
of harmful or luxurious commodities by
discouraging the demand for them.
• It can be used to remedy inflation.
• It can be used to protect developing and key
industries that may be unable to compete
with long-established firms.
 Other functions include…
• Stimulating recovery from a
deflationary trend
• Stimulating further investment and
economic growth
• Discouraging dumping in international
trade
• Correcting adverse balances of
payments

These can be found in your Fundamentals of

Economics textbook on page 364, so be sure to brush
up.
 Types of Taxes
Under this, we have Direct and Indirect Taxes.
Direct Taxes are taxes that are imposed on the income of individuals and firms, as well as their
property. This income would include wages, salaries, profits, rent and interest. The burden falls directly on the
taxpayers.
These include;
Personal Income tax;
Company tax;
Poll tax;
Capital Gains tax;
Expenditure tax;
Property or Capital tax.
Tax burden refers to the amount of tax
paid by a person, company, or country that
is considered as a proportion of their total
income in a specified period.
 Types of Taxes
Indirect Taxes are taxes that are imposed on goods and services. They can be avoided by not
purchasing taxed commodities, but the consumer who does purchase the commodity doesn’t usually know
the amount they pay as tax. The burden falls initially on the producers or sellers before being shifted to the
final consumers.
These include;
Custom duties;
Excise duties;
Sales tax;
Purchase tax;
Value-added tax.
 Systems of Taxes
Direct taxes can further
be classified according to
whether they are;
• Progressive;
• Regressive; or
• Proportional.
 Progressive Taxes
This is a form of tax in which the rate of tax
increases as the income, stock of wealth or
value of property to be taxed increases, or
in other words, the tax rate increases
according to the level of income of the
taxpayer.
 Regressive Taxes
This is a form of tax in which the rate of tax
reduces as the income, stock of wealth or
value of property to be taxed increases. So,
the tax rate decreases as the level of
income increases.
 Proportional Direct Taxes
This is a system of taxation where the
payers pay the same percentage of
their incomes as tax. Here, the tax rate
is the same irrespective of the level
of income.
Other Systems of Indirect Taxes

Indirect taxes can

either be
Ad valorem or
Specific.
 Ad Valorem Indirect
Taxes
This is a tax that is imposed on
commodities in accordance with their
respective values and at specified
percentages.
 Specific Indirect Taxes
This is a fixed tax sum imposed
per unit of a commodity
irrespective of its value.
The Key Principles of a Good Tax System

Ability
Certainty

Efficiency

Convenience Flexibility
Neutrality
Advantages of Direct Taxes
Click icon to add picture

Direct taxes are more equitable – They

lead to a better distribution of income. This
is especially true of personal income tax
which is usually graduated according to the
ability to pay.
They are usually cheap to collect – The
cost of collecting direct taxes is relatively
small compared to the total amount Click icon to add picture
collected as tax.

Direct taxes are convenient to payers

– Most direct taxes are due when the
tax-payer can afford to pay.
 Disadvantages of Direct Taxes
Click icon to add picture

Evasion and Corruption - Since

It could discourage hard
the amount of direct tax deducted
work if the tax rate is high –
depends on the tax payer willingly
Most if not all workers may
releasing information about their
not be willing to work for
income, wealth, etc., tax evasion is
longer hours if they know a
commonly done by concealing
large percentage of their
one’s real income. So honesty is
salary will be deducted.
taxed while dishonesty is rewarded.
Click icon to add picture

Direct taxes do not conform to the canon of

convenience – level of income, wealth, etc., are to be
filed in time and complete records are to be made
up-to-date by each individual tax payer. It is very
inconvenient to pay these taxes as they are collected
in lump-sum. (all at once, rather than in instalments)
Advantages of Indirect Taxes
Whereas direct taxes usually exempt the poor,
indirect taxes allow them to actually contribute
their part in collecting funds for a country or
state.

Indirect taxes, as they are incorporated in the sale price

of an item, are not very obvious. People don’t feel they
are being taxed simply because the tax comes in small
values. Plus, add the fact that they are not indicated in
the price tag, but can only be seen on the purchase
receipt. Also, they can only be avoided by not buying
the goods.

Unlike direct taxes where documents need to be

accomplished and filing is required, indirect taxes are
paid the moment a consumer buys a product. The
tax is collected by the supplier and paid to the
Disadvantages of Indirect Tax
These taxes
They do not
They cause the price discourage develop
of an article to rise; industries if civic
more than the tax. A raw consciousne
fraction of the money materials are ss (people
unit cannot be taxed. This are left
calculated, so every will raise the unaware),
middleman in the cost of because
distribution chain production many times
tends to charge and the tax-
more than the tax. discourage payer does
This process them from not even
continually adds up, being know that
growing the cost of engaged he is paying
the product. competitive tax. The tax
ly. is concealed
in the price.
ASSIGNMENT Click icon to add picture

ARRANGE ALL THE TYPES OF

TAXES UNDER THE VARIOUS
SYSTEMS OF TAXATION

FIND OUT AND WRITE DOWN 5

MORE CANONS OF TAXATION, Click icon to add picture
DESCRIBED

IGCSE WORKBOOK ACTIVITY

Questions & answers

友達に聞いて
Have a Great Day!!