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SOURCES OF REVENUES: IPSAS 9 & IPSAS 23 – PFM ACT 2016, ACT 921

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Introduction: The Hidden World of Public Revenue

When we think about how governments fund their operations, our minds usually jump straight to taxes—income tax, sales tax, property tax, and the like. It’s a simple, direct connection: we pay taxes, and the government provides services. This perception, while not wrong, captures only a fraction of the full picture.

The reality of public sector accounting is far more complex, nuanced, and surprisingly interesting. Beyond the familiar world of taxation lies a hidden landscape of non-cash assistance, forgiven debts, and hyper-specific local revenue streams.

In this article, we discuss some of the other revenue sources for the government.

  1. That Birthday Gift You Received? It’s Technically Taxable.

Here’s a fact from Ghana’s public finance playbook that might make you look at your next birthday party differently: the gifts you receive are technically a taxable form of income.

Under Ghanaian tax law, gifts received by individuals are subject to a 25% gift tax. Exemptions apply for gifts from close relatives such as parents, spouses, nephews, and nieces.

For any other gift, however, the recipient is theoretically required to report it and pay the corresponding tax. This is surprising because millions of gifts are exchanged every day without anyone considering the tax implications. It highlights a potential, if largely untapped, revenue source for the government. The concept is perhaps best illustrated with a bit of humour:

Imagine that you are having a ceremony, right? Then the GRA officers will come, and dance with you… Then quickly they will put their hand in their bag, and they will bring their files out and say we are from the Ghana Revenue Authority. At this event, you organise all the gifts you receive… You’re supposed to pay 25% of that to the Ghana Revenue Authority.

  1. Grants Aren’t Just Cash – They Can Be in other forms

Think a government ‘grant’ is just cash in the bank account of the government? The reality is far more tangible and includes everything from public health supplies to military hardware. A significant portion of public revenue arrives in a non-monetary form through something called “counterparty grants.” These are donations of goods, equipment, or expertise rather than cash.

Consider these real-world examples:

  • Sanitary pads donated by a foreign government to Ghana’s Ministry of Gender to support a public health program.
  • Military equipment donated by the United States to the Ghana Armed Forces.
  • Technical expertise provided by a foreign government to assist in a specific situation, like investigating an accident.

The core accounting principle here is that the receiving entity must determine the fair value of the donated items at the date of the donation and recognise that value as revenue. This concept is crucial because it provides a more complete picture of the total resources a government entity receives, ensuring that valuable non-cash assistance is properly recorded on its books as per IPSAS 9 Revenue from non – exchange transactions.

  1. When Debt is Forgiven, It Can Be Recorded as Income.

When a government’s debt is forgiven, that event can be recorded as a form of grant revenue. The logic is straightforward: when a creditor waives a debt as a form of relief to assist the government, the government’s liabilities decrease without a corresponding outflow of resources. This reduction in liability is recognised as income.

This accounting treatment applies specifically in situations where “creditors deem it as a relief to assist the Government.” This principle has a significant impact on how we understand public finance. It reframes debt relief from being merely the disappearance of a liability to an actual revenue-generating event on the government’s financial statements, reflecting the economic benefit received.

  1. Your Local Hospital and Bus Service Have Their Own Unique Revenue – How Covered Entities generate revenue.

While the central government deals with broad categories like direct and indirect taxes, local “covered entities” like hospitals, schools, and municipal governments operate with a different set of revenue streams. Their income is typically divided into three main categories: Decentralised Transfers (funds from the central government), Grants and Donations, and, most interestingly, Internally Generated Fund (IGF).

IGF refers to the revenue these entities are authorised to collect directly from their own specific operations. The sources of IGF vary dramatically depending on the entity, providing a clear window into its day-to-day business. For example:

  • A Public Hospital’s IGF comes from sources like admission fees, laboratory test charges, and the sale of medicine.
  • A Public Transport Company’s IGF is generated from lorry fares, package and parcel delivery fees, and luggage fees.

This distinction is more than an accounting detail; it’s a direct reflection of decentralisation in action. While “Decentralised Transfers” represent top-down funding from the central government, IGF signifies bottom-up financial empowerment. It allows local entities to fund services tailored directly to their community’s needs—a hospital’s revenue reflects local health demands, while a transport company’s income mirrors daily commuter patterns.

  1. An Assembly Member’s Allowance Isn’t Classified as a Salary.

Here’s an accounting rule that trips up even seasoned professionals and perfectly illustrates the unique logic of public finance. One would assume that allowances paid to local assembly members are a salary and should fall under Compensation of Employees.

However, public accounting rules classify these payments under Goods and Services. The reasoning is that assembly members are not considered typical employees of the assembly. Instead, the allowance is provided to facilitate their work on behalf of their constituents. This technical classification reinforces the unique nature of the assembly member’s role: it’s a shift from viewing the payment as “compensation for labour” to “facilitation of a public duty,” a core distinction that defines much of public sector logic.

Conclusion:

As these examples show, public revenue is a far more intricate and fascinating subject than it first appears. Looking beyond the simple payment of taxes reveals a world of non-cash grants recorded at fair value, forgiven debts that become income, and IGFs that covered entities generate from their operations. Understanding these nuances is key to appreciating the true financial landscape of the public sector.

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