Generating income is an important part of the government’s role in our country. Income helps cover their costs, including funding programs and services like education and health care. In order to generate income effectively, the government uses several tactics and methods to make sure that it has enough money coming in to support its operations. Here are five ways that the government generates income in our country.
1) Service Charges
Most people don’t realize it, but fees are added to almost every financial service you can think of – and they generate a ton of money. For example, $2 billion per year is generated through ATM fees alone. And that’s just one type of fee! If you pay for a stock trade or fund investment, there are also commissions, which often amount to about 10% of your total investment. It gets worse if you invest via a financial advisor: most charge 1% to 2% annually on assets under management.
2) Value Added Tax
Most countries have a value added tax that is added to any product when it changes hands from a manufacturer to a retailer and then to a consumer. To make matters even more complicated, each country calculates their VAT differently. For example, United States taxes all products based on where they are manufactured, not where they are sold. While most of Europe taxes only companies (not individuals), Australia has both kinds of VATs! And that’s just two examples out of dozens across the globe. If you’re planning on buying something online from outside your home country and would rather not pay extra for shipping, know what kind of VAT you might be charged—you might want to factor that into your purchase decision!
3) Inland Revenue
The government is a huge consumer of goods and services, but it also taxes its citizens for using these products and services. That’s where Inland Revenue comes in: it generates income for New Zealand’s government by issuing tax bills on behalf of New Zealand’s taxation department. And that includes making sure we pay our taxes! To learn more about how Inland Revenue operates
4) Excise Duty
Excise duty is a type of indirect tax on goods produced and sold inside a country. Excise duties are often used as an environmental measure, such as charging more money for cigarettes to discourage people from smoking, or a public health measure, like taxing sugary drinks to discourage people from drinking too much soda. You will usually see excise duty listed on items with higher price tags or high profit margins—like televisions or cars. It’s also collected on luxury goods like alcohol and tobacco products. On average, excise duty makes up 4% of federal government revenues, according to The Tax Foundation. In 2017, total revenue from excise taxes was $26 billion (USD).
5) Import Duties
A customs duty is a tax paid on imported goods. There are various kinds of customs duties, but they all work to regulate trade, protect domestic businesses, or raise revenue for governments. The principal way that governments generate income is through import duties and export taxes. The level of import tax varies from country to country; some countries have very high rates of customs duty while others impose a low one.
