NON-TAX INCOME: CHARACTERISTICS, TYPES, EXAMPLES - DUDAS - 2024

The non - tax revenues are recurring revenues from government sources other than taxes. The most important income under this heading are dividends and profits received from public sector companies. This type of income commonly consists of income from a very heterogeneous mix of sources.

Their contribution to total government revenue is relatively small and, compared to tax sources, most non-tax items have a limited role as a tool for governments to influence macroeconomic conditions in the country.

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Although the government always has the option of increasing the tax liability of the population to increase their income, that option will certainly not make the ruler particularly appreciated.

Instead, governments often look for ways to increase their revenues without having to tax people more. This type of income is known as non-tax income and it comes in many forms.

Characteristics of non-tax income

Under public administration, public authorities can raise some funds in the following ways.

Rates

Public authorities charge fees for the provision of a service to beneficiaries. This category includes court fees, passport fees, etc. Similarly, fees are charged for the supervisory authority to grant a permit for something.

For example, the fee for driver's licenses, for import licenses, for liquor sales permits, etc. The amount of the fee depends on the cost of the services provided.

Public company earnings

These are an important source of income, due to the expansion of the public sector. For example, the profit surplus from government-operated railways can contribute to the revenue budget of the central budget.

The pricing policy of SOEs must be self-sufficient and reasonably profit-oriented.

Loan repayment

Loans offered by the government to other entities are assets of the government. The central government makes loans to:

- Provinces or territories of the country.

- Public and private sector companies.

- Foreign governments.

Interest is an important source of non-tax revenue for the Government. The government receives interest on the loans granted.

Disinvestment

It means selling all or part of the shares of selected companies from the public sector to the private sector.

As a result, government assets are reduced. Divestment is sometimes also called privatization.

Loans

The government uses loans when its spending exceeds its income. That is, when there is a fiscal deficit. These funds are borrowed from:

- Open market.

- Reserve Bank of the country.

- Foreign governments and international organizations.

Small savings

Government revenue also includes small savings, such as deposits from the Public Provident Fund, deposits from the National Savings Certificate, etc.

Types

Government Products and Services

With the use of the equipment by the government, you eventually have to replace it because it is already outdated or worn out. They also have to sell them because government operations have become more agile.

In such situations, the government finds itself with a surplus of equipment that it can sell. The public is usually a good market for such products, such as computer equipment, public buses, furniture, etc.

These assets are sold at public auctions, where money can be raised to offset some of the costs incurred by the government.

Services are also a source of revenue for the government, such as when the public visits public parks or national heritage sites and takes guided tours. The same goes for garbage collection services.

Penalties and fines

Penalties and fines occur when government services are not paid in accordance with ordinances, or when traffic laws are violated.

Rental income

The government owns a large number of park shelters, reception facilities, school buildings, and other vacant buildings that it could potentially rent.

Government agencies could also rent their own properties to other agencies, such as when the FBI decides to rent an office in the local government town hall.

Investment income

The government participates in investments. The officials will invest the proceeds to earn dividends and interest from them. The investment consists of money from taxes.

However, the income from that investment, whether it is dividends, interest or capital gains, will be considered non-tax income. These investments can be in anything from loans to government-backed companies to exchange rates, bonds, and mutual funds.

Royalties

The government also owns most of the natural resources, including mineral deposits.

When private companies want to exploit these mineral deposits, they must pay a royalty to the government, providing it with another source of income.

Donations

Rich people often want to show their gratitude to the country by donating to the many funds that the government has established to improve the welfare of society. This also brings revenue to the government.

Examples

Non-tax income in the United States

Non-tax revenue accounted for 6.5% of US government taxes in 2015. A striking figure since it had always been 1% of GDP since the 1960s.

It has also risen a bit more of late because the federal reserve board has seen unusual gains from its efforts to stimulate the economy since 2008.

Non-tax revenue in the European Union (EU)

Non-tax revenue represents a significant part of government revenue in most Member States, despite the fact that tax revenue is by far the most important source of general government revenue in all Member States.

In 2014, across the EU as a whole, non-tax revenue accounted for just over a tenth of total revenue. The share of non-tax revenue in total revenue ranged from almost 9% in Belgium and 9.5% in Italy to 20% in Finland and Slovakia and around 24% in Bulgaria.

In relation to the size of the economy, in 2014, the Member States with the highest non-tax income were Finland (11% of GDP) and Hungary (9%), while the countries with the lowest non-tax income were Spain, United Kingdom and Ireland, with a little less than 4.5% of GDP.

When measured as a percentage of GDP, non-tax revenue has followed a moderate upward trend in the last ten years.

References

1. Nicky LaMarco (2018). Examples of Non-Tax Revenue. Small Business - Chron.com, Taken from: smallbusiness.chron.com.
2. Wikipedia, the free encyclopedia (2019). Non-tax revenue. Taken from: en.wikipedia.org.
3. The Economic Times (2019). Definition of 'Non-tax Revenue'. Taken from: economictimes.indiatimes.com.
4. Non-Tax Revenue in the European Union. Taken from: ec.europa.eu.
5. Smriti Chand (2019). Non-Tax Revenue with Classification of Public Revenue. Your Article Library. Taken from: yourarticlelibrary.com.