Public Revenue and Taxation Concepts

Chapter Ⅰ: Meaning and Sources of Public Revenue

• Public revenue is a branch of public finance, focusing on the state's income sources.
• These sources include taxes, commercial revenues (from public enterprises), administrative revenues (fees, fines), and gifts/grants.
• Government income is crucial for fulfilling government expenditure, akin to production fulfilling consumption in economics.
• Increasing state tasks lead to increased expenditure, necessitating increased public income.
• Modern income objectives extend beyond revenue generation to impact production, employment, planning, and overall economic activity.
• Dalton defined public revenue in narrow and broad senses:
  • Narrow: Taxes, public sector enterprise prices, and administrative fees.
  • Broad: All government income (includes borrowing), referred to as public receipts. Public revenue is part of public receipts. Public revenue excludes repayment obligations.

Section Ⅱ: Main Sources of Public Revenue

• Diverse revenue sources are common, driven by varied needs and circumstances.
• Key sources include:
  • Personal income and corporate profit taxes
  • Value-added/sales taxes
  • Excise taxes (on goods with inelastic demand)
  • International trade taxes
  • Property/asset taxes
  • Payroll taxes
  • Non-tax revenues (fees, charges, penalties, profits from state-owned enterprises)

Chapter Ⅱ: Taxes

Section I: Definition of Tax

• Various definitions exist, ranging from concise to elaborate.
• Examples of Tax Definitions:
  • By Prof. Bartable: compulsory monetary contribution exchanged for government services.
  • By Prof. Seligman: compulsory contribution for general public expenses, with no individual benefit attached.
  • By Prof. Trussing: no direct quid pro quo between taxpayer and administration.
  • By Prof. Taylor: compulsory payment without guaranteed return.
  • By Prof. Bastable: compulsory contribution for public power.

Section II: Elements of Tax

• Enforced Contribution: Payment is mandatory, not based on consent.
• Monetary Payment (Generally): Liquidity and valuation advantages.
• Proportionate (Ability-to-Pay): Higher income = higher tax.
• Leviable on Various Subjects: Persons, property, acts, or privileges.
• Benefit not a Condition: Tax payment is not conditional on receiving specific benefit from government spending.
• Imposed by Jurisdictional Entity: Imposed by a governing body with authority over the subject.
• Legal Basis: Taxes must be lawfully established by a State's legislative body.
• Public Purpose: Funding must be for public benefit, not private profit.

Section III: Canons of Tax

• Adam Smith's Canons:

  • Equality (Equity): Tax proportional to ability to pay (progressive taxation is preferred by modern economists), aiming for horizontal and vertical equity.
  • Certainty: Clear and predictable tax obligations. Taxpayers know precisely what, when, and how they owe.
  • Convenience: Tax collection at times and in ways convenient to taxpayers.
  • Economy: Minimize collection costs.

• Other Canons:

  • Productivity: Yield sufficient revenue.
  • Simplicity: Minimize tax system complexity to avoid evasion.
  • Elasticity: Flexible tax system to adjust to fluctuating government needs.
  • Diversity: Many taxes to broaden revenue base.

Section IV: Purposes of Taxes

• Raise Revenue: Finance government activities; crucial for reducing reliance on borrowing. Other purposes exist besides revenue.
• Income Redistribution: Reduce income inequalities. Measures used include progressive taxation, subsidies, and selective consumption taxes.
• Encourage/Discourage Activities: Promote positive behaviors and discourage negative ones via tax incentives and penalties.
• Promote Investment/Economic Growth: Adapt tax policies to stimulate/stabilize the economy, e.g., lowering taxes during recessions, increasing taxes during booms.
• Stabilize Prices/Curb Inflation: Influence demand and supply, use taxes to reduce demand when inflation risk is high.
• Address Externalities: Taxes/subsidies to manage externalities (externalities create a burden or benefit for outside parties not directly involved)
• Protect Domestic Production/Facilitate International Integration: Taxes on imports and exports to impact domestic production and international relationships.

Section V: Classification of Taxes

• Direct vs. Indirect Taxes:

  • Direct: Paid by the tax's legal recipient (e.g., income tax). Direct burden falls primarily on the taxpayer, not easily passed on.
  • Indirect: Paid by economic entities other than the legal recipient (e.g. Sales tax). The original receiver often passes the tax burden on to someone downstream.

• Proportional, Progressive, Regressive, Degressive Taxes:

  • Proportional: Tax amount is a fixed proportion of income (e.g flat tax).
  • Progressive: Higher income = higher tax rate.
  • Regressive: Tax rate decreases with income.
  • Degressive: Mildly progressive up to certain income levels, then proportional.

• Single vs. Multiple Taxes:

  • Single: One type of tax on one thing/individual type. Proponents believe it simplifies and reduces costs. Drawbacks include limited flexibility and potential inequities.
  • Multiple: Variety of taxes used, promoting equity and revenue yield. However, can increase administrative burdens.

• Distributive, Pro-Rata, Personal, Impersonal, Specific, Ad Valorem Taxes: More nuanced forms of tax categorizations.

• National vs. Local Taxes: National taxes apply uniformly nationwide, while local taxes vary regionally /locally based on their specific jurisdictions.

Chapter Ⅲ: Commercial Revenues

• Commercial revenue: earned income from the sale of goods and services by public agencies. Includes earnings from natural resources (e.g., mines, forests) and fees. Public enterprise revenues are treated similarly to commercial revenues from private businesses.
• Difference between tax and price: Taxes are mandatory, payments for goods/services generally proportional to the quantity used.

Chapter Ⅳ: Administrative Revenues

• Administrative revenues: fees, permits, fines, confiscations from property without heirs.
• Characterized by a lack of fixed mathematical relationship between payment and service benefit received.
• Examples include: fees, licenses, special assessments, , fines/penalties, forfeitures, escheats

Chapter I: Meaning of Public Budget

• Public budget: a fiscal document containing an outline of envisioned and authorized expenditure & revenue. It's a master plan for the following year and represents anticipated public funds.
• History and Definitions: The word "budget" emerged from Latin and French, initially describing bags used for treasury documents. Modern definitions emphasize forecasting and authorization for revenues and expenditures.
• Examples of budget definitions from various authors highlight consistent themes.

Essential Elements of Public Budget

• Prepared on a cash basis, not a ledger basis.
• Prepared on a gross basis, not a net basis.
• Usually annually based.
• Money not used in one year typically cannot be carried over.
• Combines all government revenues and expenditures.
• Uniform format.

Chapter Ⅱ: Objectives of Public Budget

• Resource Allocation: Redistribute resources to ensure public goods/services to meet societal needs where markets fail.
• Income Redistribution: Reduce disparities, often through progressive taxes and social support programs.
• Economic Development: Accelerate economic growth (tax incentives, infrastructure investments).
• Economic Stability: Control economic fluctuations (surplus budgets during booms, deficit budgets during recessions).
• Accountability: Budget provides a legislative mechanism for oversight of the executive branch.
• Employment Generation: Promotes job creation through public works, training, and job programs.
• Poverty Reduction: Alleviate poverty through targeted programs.

Chapter Ⅳ: Procedures of Public Budget

• Budget Cycle (Preparation, Appropriation, Implementation, Evaluation): A four-stage framework common to diverse governments that ensures funds are allocated, monitored and evaluated based on policy objectives.
• Preparation:
  • Establishing a macroeconomic framework.
  • Issuing instructions to the various governmental departments/teams.
  • Receiving proposals from departments.
  • Consensus building between various involved stakeholders
• Appropriation: Debate, approval, and making amendments as are needed. Includes discussions in the legislative body.
• Implementation: Stage by stage expenditure of funds during the budgetary year. Monitoring is a key function.
• Evaluation: Process to measure expenditures and examine the efficacy of the approved programs. Including an auditing phase for accountability.