Governments across the world have numerous channels through which they collect monies for their programmes. In Africa, most of the sources of revenue is mainly from diaspora, domestic taxes and donor funds. Here are some of the revenue streams countries tap into, according to Tax Foundation, a leading source of tax information
1. Taxes on goods and services
Consumption taxes are levied on spending on goods and services. These are in the form of excise taxes, value added taxes, or retail sales taxes.
Most governments apply a retail sales tax on the final sale of most products and excise taxes on the production of goods such as cigarettes and alcohol which in certain spheres is referred to as sin tax.
The tax can be directly or indirectly imposed on the people being taxed. The rate of taxation in a country will keep changing depending on the reasons provoking the government to charge people taxes.
2. Property tax
It is levied on the value of an individual’s or business’ property. Property taxes are mostly based on real property, although some countries do tax certain items of personal property. Office buildings are usually taxed according to the rental income they provide for their owners.
In medieval Europe, property taxes were based on the size of a piece of land. Generally speaking, the larger the piece of land was, the higher the real estate property tax was. Some property belongs to the government and can be used as a channel for making more money in return. The income that comes from such projects is considered to be public revenue.
3. Donor funding (loans and grants)
These are monies which governments receive for specific development projects. Mostly they are meant to galvanise a country from areas of interest such as health and infrastructure programmes. Donor-specific benefits dissuade donor nations from free riding on other nations – foreign aid contributions – because these benefits can only be achieved by giving.
Foreign aid is targeted at the core sectors. There are conditions that are pegged to such facilities which mean that governance and accountability are usually essential. Grants might have limited conditions since they do not attract interest.
These are penalties slapped on offenders on various grounds. Citizens are expected to pay heavy fines to the government when they continually break rules and affect innocent parties by their unhealthy and inhuman behaviour. The amount of a fine can be determined case by case, but it is often announced in advance.
The most usual use of the term is for financial punishments for the commission of crimes, especially minor crimes, or as the settlement of a claim. One common example of a fine is money paid for violations of traffic laws. Currently in English common law, relatively small fines are used either in place of or alongside community service orders for low-level criminal offences.
5. Social insurance
Social insurance taxes are typically levied to fund specific programmes such as unemployment insurance, health insurance, and old age insurance. In most countries, these taxes are applied to both an individual’s wages and an employer’s payroll.
For example, United States levies social insurance taxes at both the state and federal level to fund programmes such as social security, medicare, and unemployment insurance. In Kenya the most prominent social taxes available to the employees directly deducted by their employers are National Health Insurance Fund and National Social Service Fund.
6. Natural resources
These can be taxed under the income tax system and be subject to special resource taxes. Oil, gas, minerals, timber, alternative energy, and renewable energy resources are natural resources that may receive different tax treatment than other property.
In most countries, the income tax treats resource industries more favourably than most other industries – through favourable treatment of such capital expenses as depletion, exploration and development, and the cost of acquiring resource properties.
The case for special resource taxes is precisely to tax resource rents over and above the levies implicit in general income taxes. Some of the taxes designed around a country’s wealth attempt to include capital income on a uniform basis.
7. Government bond
This is a debt security issued by a government to support State spending. They are issued by a national government, generally with a promise to pay periodic interest payments called coupon payments and to repay the face value on the maturity date.
They are considered low-risk investments since the issuing government backs them. Some Treasury bonds trade in the secondary market. Individual investors, working with a financial institution or broker, can buy and sell previously issued bonds through this marketplace. However, government-backed bonds, particularly those in emerging markets, can carry risks that include country risk, political risk, and central bank risk.
8. Corporate income taxation
It is a direct tax on corporate profits. However, many countries differ substantially in how they define taxable income and the rate at which they apply the tax. Generally, the corporate income tax raises little revenue compared to other sources.
In Kenya, for instance, non-resident companies are subject to corporate income tax (CIT) only on the trading profits attributable to a Kenyan permanent establishment. The rate of CIT for resident companies, including subsidiaries of foreign companies, is 30 per cent. At the same time, companies that are based outside Kenya but operate in the country or have a branch here, pay corporation tax on income accrued within the country only.
9. Individual income taxes
Income taxes are levied directly on an individual’s income, beginning with wage income. Many nations, such as United States, also levy their individual income tax on investment income such as capital gains, dividends, interest, and business income. These taxes are typically levied in a progressive manner, meaning that an individual’s average tax rate increases as income increases.
In Kenya, PAYE (Pay As You Earn), is one of the many statutory taxes collected from individuals engaged in gainful employment. Under this, the employers make a deduction of a particular percentage from the salary. This percentage is forwarded to the Kenya Revenue Authority on monthly basis. Of the many statutory taxes in Kenya, PAYE applies to bonuses, director’s fees, commission, weekly wages, monthly and annual salaries.
10. Local authority fees
Refers to the amounts received from the various direct services that are offered to the public. The services are provided by the local authority with a good example being the parking fees charged daily in urban centres. Monies collected by the central or local authority from the many number of commercial activities that take place in the country are also very essential to the development of a country.
Governments are also trying to develop advanced means of collecting money from people when demand shows that need exists. However, in this instance, low fees are the trick to encourage sustainability because most of the taxed are low-end traders.