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Question

Difficulty: MediumSources of Government Revenue

A state government in Nigeria receives statutory allocations from the Federation Account, collects Pay-As-You-Earn (PAYE) tax from employees, charges toll fees on state highways, and issues a 10-year municipal bond to fund infrastructure development. Which of these financial inflows is classified as a capital receipt?

  1. The funds raised from issuing the 10-year municipal bondAnswer
  2. B
    The Pay-As-You-Earn (PAYE) tax collected from employees
  3. C
    The toll fees charged on state highways
  4. D
    The monthly statutory allocation from the Federation Account

Answer

The funds raised from issuing the 10-year municipal bond represent a capital receipt.
Capital receipts are non-recurring financial inflows that either create a financial liability (such as domestic or foreign loans) or reduce government assets (such as privatization proceeds). Issuing a 10-year municipal bond is a form of public borrowing that incurs a debt liability to fund long-term development projects.

Step-by-Step Solution

1
Distinguish between recurrent revenue and capital receipts
Recurrent revenues (taxes, fees, statutory allocations) are regular operational inflows, whereas capital receipts are long-term loans, grants, or proceeds from asset sales.
Government revenue classification separates operational funds from debt/capital creation funds.
2
Categorize the listed government financial inflows
PAYE is a direct tax, toll fees are non-tax recurrent receipts, statutory allocations are recurrent revenue transfers, and municipal bond proceeds are long-term borrowed funds.
Borrowing funds through bond issuance creates a financial obligation intended for capital projects.
3
Identify the item matching capital receipt criteria
The municipal bond proceeds represent a capital receipt.
Capital receipts consist of non-recurring receipts that increase public debt liabilities or reduce public assets.

Key Concept

Classification of Government Revenue: Recurrent Revenue vs Capital Receipts
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Topics

Sources of Government Revenue

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