Public Sector Revenue Sources and Different Taxes

Almost all countries get income from public revenue and public borrowing. Public revenue includes money that the government is not obliged to return from whom it was obtained. Public borrowing, on the contrary, carries with it the obligation on the part of the government to pay money back to the persons from whom it has been obtained. In this chapter, public sector revenue sources, public sector borrowings, intergovernmental transfers and revenue administration will be discussed.

The Financial management system (FMS) distinguishes between two main types of government revenue: own source revenue and transfers from other government sub-sectors. Own source revenue is defined as revenue raised by a government from its own imposition of a tax, a license, a fee or any other charge. Personal income tax, consumption taxes and contributions to social insurance plans are all part of that group. On the other hand, a transfer from another government sub-sector is an amount of money received directly from another party without a direct impost by the receiving party. Meanwhile, transfer payments fall into two categories-general purpose, where no restriction is placed on their use, and specific purpose, where certain conditions must be fulfilled in order to qualify for the transfer which govern the use of the transfer. Equalization payments are classified in the general transfer category, while provincial government transfers to assist municipalities in the operation and upgrade of the local road and bridge systems are classified in the specific transfer category (FMS. 2009)

• Personal income tax – these are general levies on individual income and unincorporated businesses as well as special levies on income, such as surtax that governments charge from time to time. Likewise, any proceeds from the tax on capital gains of individuals and unincorporated businesses are included here.
• Corporation income tax - Includes federal, provincial and territorial taxes on the taxable profits of corporations. It also includes special taxes levied on the profits of corporations.
• Mining and logging taxes – These are specific taxes which are levied on profits of natural resource based industries.
• Taxes on payments to non-residents – These may include the federal tax withheld at source on payments to non-residents (both individuals and corporations) of dividends, interest, rents, royalties, amounts arising from trusts and estates as well as withholdings on foreign insurance companies.
• Other income taxes - These income taxes, which do not fall to any of the other classifications..

Consumption Taxes

• Sales tax - The proceeds of the federal Goods and Services Tax (GST) and of provincial retail sales taxes are recorded in this category.
• Alcoholic beverage taxes – These are taxes levied on alcoholic beverages based on thevolume of production.
• Tobacco tax - These are special levies such as excise tax, excise duty and provincial specific taxes on the production and sale of tobacco products.
• Amusement tax – Encompasses tax receipts from admissions to theaters, cinemas, recreational, cultural or other entertainment activities, horse race tracks and casinos” gaming activities.
• Gasoline and fuel taxes – Accounts for the proceeds of specific taxes on gasoline, on aviation and diesel fuel and on propane or other substances.
• Customs duties - Applies only to the federal level and take into account the proceeds from levies on commodities.
• Miscellaneous consumption taxes – These are levied at the federal level for the yield of special excise levies on jewellery and watches, telecommunications, electricity, gas coal and others.

This classification is divided into different categories: natural resource royalties, remitted trading profits, interest income and other investment income.

• Natural resource royalties - These include royalties from leases of land and royalties paid on extraction. It also includes revenue from the auction of licenses for the electro-magnetic spectrum. Likewise, royalties from books, recordings, films and others are also included.
• Remitted trading profits – These include returns from own enterprises.
• Interest income - Accounts for interest received on loans, investments and interest on overdue taxes

Property and Related Taxes

• Property taxes- These are the taxes on properties.
• Capital taxes – Refer to the taxes levied by federal, provincial and territorial governments on the paid-up capital of corporations.
• Land transfer tax – These are the proceeds of levies on the value of property transferred.
• Wealth transfer taxes – Encompasses transfer duties and gift taxes.
• Fines and penalties – These are personal fines and penalties arising from infringement of laws, by-laws and ordinances.
• Capital transfers from own sources – Transactions which may consist of the cancellation of a liability by a creditor that may reduce the debt of the recipient.
• Other donations – These are revenues from fundraising activities and other donations in cash or securities from individuals and businesses.

Transfers are broken down by level of government from which the transfers originate. Transfers from the federal government are as follows:

• General purpose capital transfers from the federal government - These may encompass the cancellation of a debt by the federal government to increase the saving of the recipients.
• Statutory subsidies – These are provincial government revenue received in accordance with the Constitution Act and other legislation. The objective of the subsidies is to provide a source of revenue to the provinces, to compensate for revenues lost on joining Confederation; and to support provincial and territorial governments.
• Shares of federal taxes on preferred share dividends and on income of certain public utilities
• Tax revenue guarantees - Include money given to the provinces under the terms of the Federal-provincial tax revenue guarantee agreement. Under this agreement, the federal government provides a guarantee that the provinces would not suffer a loss of revenue if they adopted their personal income tax acts modeled on the federal tax acts.
• Equalization - Encompasses transfers received from the federal government to reduce inter-provincial disparities in per capita fiscal capacity and to help less capable provinces.
• Stabilization – Refers to transfers received from the federal government to protect provincial governments from the steep reduction in revenue.