ECO 407 — FISCAL POLICY AND ANALYSIS: Lecture Note

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LA-NET | ONLINE LEARNING VIDEO PLATFORM FOR POST-SECONDARY & HIGHER INSTITUTION STUDENTS Course Code: ECO 407 Course Title: FISCAL POLICY AND ANALYSIS Course Units: 3 units Government Revenue and Taxation Systems Public Expenditure and Debt Management Fiscal Federalism and Intergovernmental Relations Income Tax Administration in Nigeria Public Sector Policies and Economic Development Main Parts and Sub-Parts 1.1 Sources of Government Revenue 1.1.1 Definition and classification of government revenue 1.1.2 Tax revenue versus non-tax revenue 1.1.3 Importance of government revenue for fiscal policy 1.2 Principles and Types of Taxation 1.2.1 Definition of taxation and its objectives 1.2.2 Direct taxes: personal income tax, company tax 1.2.3 Indirect taxes: value-added tax, excise duties, customs duties 1.2.4 Distinction between taxation of income and taxation of capital 1.3 Personal Income Tax 1.3.1 Scope and application of personal income tax 1.3.2 Exemptions, settlements, trusts, and estates 1.3.3 Relevance of personal income tax to fiscal policy 1.4 Company Taxation 1.4.1 Principles and scope of company tax 1.4.2 Small company provisions: definitions, computation, exemptions 1.4.3 Role of company tax in economic development

LA-NET | ONLINE LEARNING VIDEO PLATFORM FOR POST-SECONDARY & HIGHER INSTITUTION STUDENTS 1.5 Relevance of Taxation to Economic Development 1.5.1 Taxation as a tool for resource mobilisation 1.5.2 Taxation and redistribution of income 1.5.3 Challenges of taxation in developing economies Introduction Fiscal policy is one of the most important instruments available to governments for influencing the economy. In this Series, we focus on government revenue and principles of taxation, which form the foundation of fiscal analysis. Revenue is the lifeblood of the state, enabling it to provide public goods, maintain infrastructure, and pursue development goals. Taxation, in particular, is not only a means of raising funds but also a powerful tool for redistributing income, regulating economic behaviour, and promoting equity. The aim of this Series is to help you explore the different sources of government revenue, with special attention to taxation systems. You will examine the principles behind taxation, the distinction between income and capital taxation, and the specific applications of personal and company taxes. By the end of this Series, you will be able to analyse how taxation contributes to economic development and evaluate the challenges faced in implementing effective tax systems. This Series follows a sequential path: It begins with the sources of government revenue, distinguishing between tax and non-tax income. It then moves into the principles and types of taxation, highlighting direct and indirect taxes. The discussion continues with personal income tax and company taxation, examining their scope, exemptions, and relevance. Finally, it concludes with the role of taxation in economic development, linking fiscal measures to broader national goals. Series Learning Outcomes At the end of Series 1: Government Revenue and Principles of Taxation, you should be able to: SLO 1.1: Define government revenue and classify its major sources, distinguishing between tax and non-tax income. SLO 1.2: Explain the principles and objectives of taxation, and differentiate between direct and indirect taxes.

LA-NET | ONLINE LEARNING VIDEO PLATFORM FOR POST-SECONDARY & HIGHER INSTITUTION STUDENTS SLO 1.3: Analyse the scope and application of personal income tax, including exemptions, settlements, trusts, and estates. SLO 1.4: Evaluate the principles and scope of company taxation, with emphasis on small company provisions, computation, and exemptions. SLO 1.5: Assess the relevance of taxation to economic development, focusing on resource mobilisation, redistribution of income, and challenges in developing economies. 1.1 Sources of Government Revenue Government revenue refers to the income collected by the state to finance public expenditure. It is the backbone of fiscal policy because without adequate revenue, governments cannot provide essential services or pursue development goals. 1.1.1 Definition and Classification of Government Revenue Government revenue can be classified into two broad categories: Tax revenue: Compulsory payments made by individuals and organisations to the government without direct benefit in return. Non-tax revenue: Income earned by the government from sources other than taxation, such as fees, fines, licences, rents, and dividends from public enterprises. Key term: Tax revenue is the compulsory contribution imposed by law on individuals and organisations to fund government activities. Key term: Non-tax revenue refers to income generated by the government from sources other than taxes, such as service charges or profits from state-owned enterprises. 👉 In-text question (ITQ): Government revenue can be broadly classified into ______ and ______. 1.1.2 Tax Revenue versus Non-Tax Revenue Tax revenue is predictable and forms the largest share of government income in most economies. Non-tax revenue, while useful, is often less stable and smaller in proportion. For example, while taxes fund infrastructure and social services, non-tax revenue may come from court fines or royalties from natural resources. 👉 ITQ: Which type of revenue is usually more stable and predictable for governments? 1.1.3 Importance of Government Revenue for Fiscal Policy Revenue is essential for: Financing public expenditure such as education, healthcare, and defence. Supporting economic development through infrastructure investment. Managing national debt by ensuring funds are available for repayment.

LA-NET | ONLINE LEARNING VIDEO PLATFORM FOR POST-SECONDARY & HIGHER INSTITUTION STUDENTS Promoting equity through redistribution policies. Figure 1.1 Placeholder: A pie chart showing the proportion of tax revenue versus non-tax revenue in a typical economy. (AI prompt suggestion: “Generate a pie chart showing 70% tax revenue and 30% non-tax revenue for a government budget.”) --- Pilot questions 1.1 Government revenue can be classified into: a) Direct and indirect revenue b) Tax and non-tax revenue c) Public and private revenue d) Domestic and foreign revenue Which of the following is an example of non-tax revenue? a) Value-added tax b) Customs duty c) Court fines d) Company income tax Tax revenue is considered more ______ than non-tax revenue. a) Volatile b) Stable c) Irregular d) Optional The compulsory contribution imposed by law on individuals and organisations is called: a) Non-tax revenue b) Tax revenue c) Public expenditure d) Fiscal responsibility Which of the following is NOT a purpose of government revenue? a) Financing public expenditure

LA-NET | ONLINE LEARNING VIDEO PLATFORM FOR POST-SECONDARY & HIGHER INSTITUTION STUDENTS b) Supporting economic development c) Managing national debt d) Increasing private profits 1.2 Principles and Types of Taxation Taxation is one of the most significant instruments of fiscal policy. It provides governments with the resources needed to finance public expenditure and also serves as a mechanism for redistributing wealth and regulating economic activity. 1.2.1 Definition of Taxation and Its Objectives Taxation refers to the compulsory levy imposed by a government on individuals, businesses, and other entities to raise revenue for public purposes. The objectives of taxation include: Raising revenue for government expenditure. Redistributing income to promote social equity. Regulating consumption and production patterns. Stabilising the economy by influencing aggregate demand. 👉 In-text question (ITQ): The compulsory levy imposed by government on individuals and businesses is called ______. 1.2.2 Direct Taxes: Personal Income Tax and Company Tax Direct taxes are levies imposed directly on individuals and organisations, based on their income or wealth. Personal income tax: Charged on the earnings of individuals, with allowances and exemptions applied. Company tax: Levied on the profits of corporations, with provisions for small companies. Direct taxes are progressive in nature, meaning that higher earners contribute a larger proportion of their income. 👉 ITQ: Which type of tax is levied directly on income or wealth? 1.2.3 Indirect Taxes: Value-Added Tax, Excise Duties, Customs Duties Indirect taxes are levies imposed on goods and services rather than directly on income. Value-added tax (VAT): Charged at each stage of production and distribution. Excise duties: Levied on specific goods such as alcohol, tobacco, and petroleum products.

LA-NET | ONLINE LEARNING VIDEO PLATFORM FOR POST-SECONDARY & HIGHER INSTITUTION STUDENTS Customs duties: Imposed on imported goods to regulate trade and protect domestic industries. Indirect taxes are generally regressive, as they affect all consumers regardless of income level. 👉 ITQ: Excise duties are imposed on specific goods such as ______ and ______. 1.2.4 Distinction Between Taxation of Income and Taxation of Capital Taxation of income refers to levies on earnings from wages, salaries, and profits. Taxation of capital, on the other hand, applies to wealth holdings such as property, investments, and inheritances. Income taxation is recurrent and linked to regular earnings. Capital taxation is occasional and often linked to ownership or transfer of assets. Table 1.1 Placeholder: Comparison of income taxation and capital taxation. (AI prompt suggestion: “Generate a table comparing income taxation and capital taxation, showing basis, frequency, and examples.”) --- Pilot questions 1.2 Taxation is defined as: a) Voluntary contribution to government b) Compulsory levy imposed by government c) Payment for private services d) Donation to charity Which of the following is a direct tax? a) Value-added tax b) Customs duty c) Personal income tax d) Excise duty Indirect taxes are generally considered: a) Progressive b) Regressive c) Neutral d) Optional

LA-NET | ONLINE LEARNING VIDEO PLATFORM FOR POST-SECONDARY & HIGHER INSTITUTION STUDENTS Excise duties are imposed on: a) Imported goods b) Specific goods like alcohol and tobacco c) Salaries and wages d) Company profits Taxation of

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