Part J - The difference between government taxes and government fees for services

One of the regulatory functions of governments is to prohibit the ownership or use of certain goods or the pursuit of certain activities, unless specific permission is granted by issuing a licence or other certificate for which a fee is demanded. To decide whether such a fee constitutes taxation revenue (ETF 1111) or a component within the category of sales of goods and services (ETF 112) the following recommendations apply:

Fee payments are recorded as taxation revenue when:

The government unit performs little or no work in return for payment (such as performing a check of the legal capacity of an applicant of a permit to confirm the applicant has not been convicted of a crime). Examples of this are:

• A licence or a permit is automatically granted by the government as a mandatory condition to perform an activity or acquire an asset.
• The payer of the levy is not the receiver of the benefit, such as a fee collected from slaughterhouses to finance a service provided to farmers.
• The government is not providing a specific service commensurate with the levy (even though a licence may be issued to the payer), such as a hunting, fishing, or shooting licence that is not accompanied by the right to use specific government owned natural resources. Other examples include dog registration, marriage licences, payments by persons or households for licences to own or use vehicles (such as the renewal of a drivers' licence), boats or aircraft;
• The benefits are received only by those paying the fee but the benefits received by each individual may vary in proportion to the payments, such as a milk marketing levy paid by dairy farmers and used to promote the consumption of milk;
• If beneficiaries cannot opt out of a compulsory scheme (such as fees paid to government for deposit insurance and other guarantee schemes if they are compulsory), if the payment is clearly out of proportion to the service provided, if the payment is not set aside in a fund, or if it can be used for other purposes.
• In certain circumstances it may be conceptually justifiable to split the payment into a revenue generation and a full cost recovery component, therefore treating a portion of the payment as the sale of goods and services and the remaining portion as a tax. It may be appropriate to adopt this treatment in situations where a product of measurable benefit is provided to the payer and the case is economically significant.

Fee payments are recorded as the sale of goods and services when:

• The issuing of a licence or permit involves a proper regulatory function of the government by exercising control on the activity, checking the competence or qualifications of the persons concerned, etc. Examples include the assessment process involved with the application of a drivers' licence, pilot’s licence, television broadcast licences, radio licences, firearm licences, and payments for airport fees, court fees, etc.