There are many sources of government revenue. This revenue is based on the activities of the country. And this is achieved through funds. The fund is necessary for the operations of the government (public sector) as well as the private sector.
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Government’s financial problems circulate
Government must obtain money for the performance of its duties.
1. Where to get the money
2. How to keep the money
3. How to utilize the money
Government revenue
Government revenue is amply divided into two as follows:
1. Revenue Receipts
2. Capital Receipt
1. Revenue Receipt As A Source Of Government Revenue
This includes all revenues accruing to the government through tax and non-tax sources. The government’s revenue receipts are further classified into two:
1. Taxation revenue
2. Nontaxation Revenue.
1. Taxation Revenue
Tax and taxation are most often used interchangeably in many texts and are so used here too. The slight difference is that tax is a compulsory payment made by individuals and institutions to the government whereas taxation is the management and administration of tax.
However, tax has been described as a compulsory contribution from corporate and natural persons to the government to defray the expenses incurred in the common interests of all, without reference to special benefits conferred. Such areas of revenue sources include:
- Income tax
- Petroleum profit tax
- Other taxes
Capital gains tax, Value added tax, Stamp duties, and penalties, Education tax, Withholding tax, Casino and pools betting tax, etc.
4. Customs duties
Import duties, Export duties, Excise duties.
The taxation revenue is further divided into
- Direct tax and
- Indirect tax
- Direct tax
Direct tax is payment out of the income of individuals and corporate bodies to which the incidence of payment cannot be shifted from the person making payments.
Such taxes include personal income tax, company tax, petroleum profit tax, capital gains, transfer taxes, etc. In Nigeria, direct taxes like personal income tax and company tax do not constitute a reliable source of revenue to the government due to the following reasons:
1. Inadequate Information
It is difficult for the government to obtain accurate information about the income of every economic unit and person in the country. Where such information is obtained, the income is usually underestimated.
2. Problem Of Tax Evasion
Unlike indirect tax, direct taxes have a very high rate of evasion. Tax avoidance and evasion are twin evils in the tax system.
Tax avoidance refers to financial or other arrangements that legally reduce one’s tax liability. It is the act of taking advantage of legal loopholes in the tax system to reduce the tax payable or refrain from paying tax completely.
On the other hand, tax evasion refers to illegalities committed to eliminating or reducing tax liabilities. It implies running away from paying taxes. Tax evasion is illegal.
3. Nature Of The Manufacturing Sector:
The need to sustain the growth of this sector through tax incentives makes it impossible for the government to generate reasonable revenue from this sector.
2. Indirect Tax
Indirect tax relates to the tax imposed on goods and services of which the incidence of payment can be shifted. Here, we have such taxes as value-added tax (VAT), import duty, export duty, excise duty, etc.
Collection And Custody Of Tax Revenue
To make for ease of administration and uniformity and tax laws, the federal government legislates on certain taxes while states collect them. The same thing applies to state and local governments.
2. Non-Taxation Revenue
Nontaxation revenue sources include:
1. Revenue from crude oil: earnings from NNPC activities, rents of the oil block, etc.
2. Revenue from fees and fines
3. Investment income
4. Grant and aids
5. Sale of government properties
2. Capital Receipts As A Source Of Government Revenue
This refers to revenue and returns from the government’s lending activities. The borrowing could be internal or external.
Federal Government Revenue Sources
Federal government revenue sources can be classified into two, namely:
- Federation Accounts Revenue
- Federal Government Accounts Revenue
1. Federation Account Revenue
A federation account is a distributable pool account rationed among the federal, state, and local governments on such terms and manners prescribed by law (Revenue Allocation). The revenue therein is owned and shared by the three tiers of government.
Revenue into this account is collected by the federal government but shared by the three tiers of government. The federation account is also known as the distribution pool account.
Federal Government Account Revenue Or Consolidated Revenue Fund
The federal government account and the revenue therein belong exclusively to the federal government.
State Government Revenue Sources
Sources of state government revenue include among others:
1. Allocation from the federation accounts
2. Personal income tax
3. Pay as you earn (PAYE)
4. Capital gains tax (individuals only)
5. Stamp duties (on instruments executed by individuals)
6. Pools betting, gaming, and casino taxes
7. Road taxis
8. Business premises and registration Levy
9. Development Levy (individuals only)
10. Naming or Street registration in the state capital
11. Right of occupancy fees in the state capital and urban cities
12. Market fees where state finances are involved
13. Nontaxation Revenue
Local Government Revenue Sources
The local government revenue sources include:
1. Allocation from federation accounts
2. Allocation from state internally generated revenue
3. Shops and kiosks rates
4. Tenements
5. On and off liquid license
6. Slaughter slab fees
7. Marriage, birth, and death registration fees
8. Naming of street registration fees (excluding state capitals)
9. Market/motor park fees (excluding markets where state finances are involved)
10. Domestic animal license
11. Bicycle, trucks, canoe, wheelbarrow, and carts fees
12. Cattle tax
13. Merriment and road closure fees, radio/television (not their station) levy
13. Vehicle radio license
14. Public conveniences
15. Sewage and refuge disposal fees
16. Signboard/advertisement permit
17. No taxation revenue
18. Wrong parking charges
In conclusion, all these sources of government revenue have one thing in common and that thing is tax without tax there is no way a revenue can be generated.
