Government fees can count as taxes when compulsory payments exceed the cost of the service provided, International Monetary Fund government finance statistics expert Justine Ayebare said.
The distinction means countries can record charges for the same document differently in their public accounts. A driver's licence payment can count as a tax in one country and a service payment in another.
Ayebare discussed the distinction on the IMF's programme The Economy — How Do You Measure That?, in an episode titled “Is That Government Fee Actually a Tax?”, published Oct. 29.
A tax is compulsory and does not provide the payer with something of equal value in return, she said. A service payment usually covers a regulatory task, with the charge proportional to what the government spends to provide it.
The label attached to a payment does not determine how statisticians record it. A charge described as a licence, fee or permit must be assessed by what the transaction involves. “We don't look at the name,” Ayebare said.
A driver's licence illustrates how the distinction works. The government alone can issue it, making the payment compulsory for someone seeking that permission. But a charge matching the government's cost of providing the licence would count as payment for a service.
The assessment therefore depends on both whether payment is compulsory and how the charge compares with the cost of providing the service. A compulsory payment far above that cost would count as a tax.
Statisticians are working to clarify the distinction under international statistical standards so countries can record these payments consistently. The work includes spelling out circumstances in which a payment qualifies as a tax and circumstances in which it does not.
Clearer examples would leave countries compiling the figures with fewer uncertain cases to resolve. Ayebare did not give a completion date for that work or specify a numerical threshold for deciding whether a charge is proportional to the cost.
A building safety inspection provides another example of a service payment. Government staff must inspect the building and, if it is unsafe, explain what needs to change. The government performs work for the payer, and a charge proportional to that cost counts as a service payment.
The classification helps distinguish the government's collection of money for public services from its provision of services to individual payers. Taxes raise revenue to fund services for everyone. When government supplies a service in return for a corresponding payment, it acts like another service provider.
