Chapter 5: Introduction to Government Revenue

Keywords

• taxation
• government
• revenue
• taxes
• taxes
• taxes

By the end of this sub-topic, you should be able to:

(a) understand government revenue and why the government needs revenue.

(b) know the sources of government revenue.

Introduction

We need to know where the government gets money to construct roads, build schools and hospitals, and pay government workers. Think of examples locally, nationally and internationally.

In this chapter, you are going to explore the various sources of government revenue. This will enable you to become informed citizens. The e-government needs money to provide social and economic services for the well-being of its people, and it collects money from various sources.

Sources of Government Revenue

The government spends a lot of money to provide goods and services to the citizens. It uses earnings it gets from various sources. This earnings money got is called government revenue.

Government revenue is money received by a government from taxes and non-tax sources, to enable it to undertake government expenditures. These sources include:

(a) Taxes: Government gets revenue from taxes on income, profits and goods, whose value increases, taxes on goods and services consumed and taxes on permission to use goods or to perform certain activities, for example, operating a casino or lottery organisations. Taxes are the biggest source of government revenue.

(b) Fees; people pay money to the government for the services offered such as passport fees on international travellers and licensing fees; for example, on driving permits as shown in photographs 5.1.1 below.

Fig 5.1.1:: A copy of a passport

(c) Fines or Penalties; these are charges imposed on people who go agains state laws; for example, police traffic laws. Figuree 5.1.2 shows police me handling offenders who will pay fines after investigations.

Fig 5.1.2: Police officers handling an offender.

(d) Rates: refers to local taxation; for example taxation levied by (or for) local, rather than central government. Normally, rates are proportional to the estimated rentable value of business and domestic properties.

(e) Surplus of the public sector units: The government acts like a business- person and the public acts like its customers. The government may either sell goods or render services like train, city bus, electricity, transport, water supply, among others. The government also earns revenue from the production of commodities like steel, oil, or life-saving drugs.

(f) Gifts and grants: Gifts are voluntary contribution from private individuals or non-government donors to the government fund, for specific purposes such as relief fund, or defence fund during war or an emergency. However, this Source provides a small portion of government revenue. Figure 5.1.3 below shows individuals donating to the ministry of Health in Uganda

Fig 5.1.3:: Ministry of health receiving a donation

(g) Printing of paper money: This is another source of revenue of the government. It is a method of creating extra resources. This method is normally avoided because once this method of financing is started, it becomes difficult to stop it.

(h) Borrowings: Borrowing from the public is another source of government revenue. It includes loans from the public in the form of deposits, bonds and also from the foreign agencies and organisations.

Distribution of Government Revenue

Revenue distribution refers to the manner in which a government allocates, 0 distributes revenue to different levels of government institutions, or directly to citizens

Activity 5.1.1 Distribution of the government revenue

In groups, study the pie charts in figures 5.1.4 and 5.1.5 below, showing the distribution of revenue in USA and Uganda, and answer the questions that follow

Every source of government revenue has its own structure. The structure of Uganda’s tax system is comprising of excise duty, import duties, export duties, VAT, and all the income taxes.

Importance of Government Revenue

The taxation and revenue department works hard to collect the taxes and other fees passed by the Legislature, in a fair and efficient manner. Who benefits when taxes are collected?

Activity 5.1.2 Importance of Government Revenue

In pairs, read the poem below and answer the questions that follow.

Village, county or district A city, or a country Depends on revenue to support Basic infrastructure systems. Income is generated from Taxes on income, sales, property Toll on roads and borrowing To pay for needs of people.

It’s duty of citizens to pay Their dues, their fair share and fines To receive support for education, health and clean water. Gross income from all sources Helps in overall maintenance Oh, what a wonderful transformation!! In our communities, towns and cities.

Task:

1. From the poem, identify the purpose of government revenue to the citizen

2. Explain other importances of government revenue to your country.

3. Present your work to the rest of the class. Other benefits of government revenue The distribution of government revenue has a remarkable impact on individual communities and the whole economy, in terms of development and welfare.

Promoting modern agriculture in the country; the government achieves this through establishing demonstration centres, and agricultural research centres; for example, Makerere University Agricultural Research Institute Kabanyolo. Government revenue benefits the community if used in an appropriate way with proper accountability of the funds.

Activity 5.1.3

Discussing the impact of government revenue on your community

In groups,

1. Visit a nearby community and interview people on how government revenue benefits them. Note down your findings.

2. Debate on the motion “Government revenue has benefited the community in which we live”. Note down the views of different debaters.

3. Write a letter to the local government outlining some funds that you believe are required to improve your community.

Government revenue benefits the community if used in an appropriate way with proper accountability of the funds

Chapter Summary

In this chapter, you have understood the meaning of government revenue, sources of government revenue, and its importance to the government.