Economics » Public Finance » Government Revenue

Sources of Government Revenue

To be able to perform these and other related functions, however, government requires some funds. Government revenue is the income which accrues to the government to enable it perform its traditional functions. Sources of government revenue are conventionally classified into two: tax revenue and non-tax revenue.

  1. Tax Revenue: A tax is a compulsory levy imposed by the government on individuals, businesses or institutions without any service rendered to the tax payer in return. The composition of the various taxes in total tax revenue (i.e. the tax structure) varies from one country to the other. With the exception of major oil-exporting countries like Nigeria and other members of Organisation of Petroleum Exporting Countries (OPEC), tax revenue constitutes the major part of government revenue in most countries.
  2. Non-Tax Revenue: Sources of non-Tax revenue include:
    1. Fees, Fines, and Specific Charges: These include fees received from services rendered by government e.g. court fees, school fees, stamp duties, fines imposed for violating government rules, charges like water rates, vehicles licenses, toll fees, contractors’ registration fees, etc.
    2. Grants: These are incomes received in the form of aid from other countries or from international organisations, in most cases, to finance specific developmental programmes. But all grants are voluntary gifts and are thus, very uncertain sources of government revenue.
    3. Rents, Royalties, and Profits: These are incomes derived from the use of government property, profits from government business enterprises and income from mining rights.
    4. Loans: These are incomes generated by borrowing from private individuals or businesses within the country (domestic/ public debt) or from foreign countries or international financial institutions (external public debt).

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