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Public sector revenue sources

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The government of a country gets income from two sources, namely, public revenue and public borrowing. Public revenue consists of money that the government is under no obligation to return to every individual from whom it is 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.

Public sector revenue sources

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. 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.

Income taxes

  • Personal income tax – Encompasses general levies on income of individuals and unincorporated businesses as well as special levies on income, such as a surtax that governments charge from time to time. The proceeds from the income tax on capital gains of individuals and unincorporated businesses are included here.
  • Corporation income tax – Includes most federal, provincial and territorial taxes on taxable profits of corporations. It also includes special taxes which are occasionally levied on profits of corporations.
  • Mining and logging taxes – Accounts for specific taxes which are sometimes levied on profits of natural resource based industries.
  • Taxes on payments to non-residents – Includes the federal tax withheld at source on payments to non-residents (both individuals and corporations) of dividends, interest, rents, royalties, alimony, managerial fees and amounts arising from trusts and estates as well as withholdings on foreign insurance companies.
  • Other income taxes – Includes income taxes which cannot be allocated to any of the other categories.

Consumption taxes

  • General sales tax – The proceeds of the federal Goods and Services Tax (GST) and of provincial retail sales taxes are recorded in this category.
  • Alcoholic beverages taxes
  • Tobacco tax – Encompasses special levies such as excise tax, excise duty and provincial specific taxes on the production and sale of tobacco products. General sales taxes and customs duties applicable to tobacco products are included under their respective headings.
  • Amusement tax – Includes tax receipts from admissions to theaters, cinemas, recreational, cultural or other entertainment activities. Taxes levied by provincial and territorial governments on pari-mutuel betting at horse race tracks and on casinos’ gaming activities are also included here.
  • Gasoline and motive fuel taxes – Includes the proceeds of specific taxes on gasoline, on aviation and diesel fuel and on propane or other substances when used as motive fuel.
  • Customs duties – Applies only to the federal level and take into account the proceeds from levies on commodities.
  • Miscellaneous consumption taxes – Accounts at the federal level for the yield of special excise levies on jewellery and watches, toilet preparations and an assortment of sundry items and for revenue paid to the federal government from provincial lottery corporations. At the provincial level, it includes the proceeds from special taxes on telecommunications and advertising taxes, computer software, electricity, gas, coal, and fuel oil and on other goods and services.

Property and related taxes

  • General property taxes
  • Capital taxes – Includes the taxes levied by federal, provincial and territorial governments on the paid-up capital of corporations.
  • Land transfer tax – Includes the proceeds of levies on the value of property transferred.
  • Wealth transfer taxes – Includes succession duties and gift taxes. The federal succession duties and gift taxes were eliminated in 1971 and by mid-1985 all provinces had withdrawn from these fields of taxation. However, governments are still collecting duty related to unsettled cases prior to the taxes being abandoned.

Investment income – This category is divided into four sub-categories: natural resource royalties, remitted trading profits, interest income and other investment income.

  • Natural resource royalties – Includes all royalties on natural resources. Royalties cover leases of land (“Rentals” including rentals and fees, and bonus bids) and royalties paid on extraction. It also includes revenue from the auction of licences for the electro-magnetic spectrum. Royalties on books, recordings, films, etc., are also covered.
  • Remitted trading profits – Returns from own enterprises comprise two categories: remitted profits and dividends.
  • Interest income – Includes interest received on loans and investments as well as interest on overdue taxes.

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