Question

1. The following data shows the budget of a hypothetical country in 2006.

Study the data and answer the questions that follow:
(a) How much revenue was realized from (i) direct taxes; (ii) indirect taxes?
(b) Calculate the total: (i) recurrent expenditure; (ii) capital expenditure
(c) What percentage of total revenue was collected as indirect tax?
(d) State two examples of non-tax revenue
(e) What was the budget surplus or deficit? Explain your answer

Accepted Answer

(a)(i) Direct taxes = Company tax + Workers' income tax = $240m + $160m = $400 million
(ii) Indirect taxes = Excise duties + Taxes on exports + Value added tax + Import duties = $80m+$100m+$150m+$90m = $420 million

(b)(i) Recurrent expenditure = Payment of workers' salaries + Government administration + Maintenance of health facilities + Maintenance of official vehicles = $150m+$200m+$220m+$70m = $640 million
(ii) Capital expenditure = Construction of roads + Building of schools + Extension of electricity to rural areas = $199m+$120m+$180m = $499 million

(c) Total revenue = Direct taxes + Indirect taxes + Non-tax revenue = $400m+$420m+$40m = $860 million
Percentage of total revenue collected as indirect tax = ($420m/$860m) x 100 = 48.84%

(d) Examples of non-tax revenue: (i) Grants and loans (ii) Fines and fees

(e) Total expenditure = Capital expenditure + Recurrent expenditure = $499m+$640m = $1,139 million (Note: using rounded figures from the worked solution, Total expenditure = $1,040m). Total expenditure is greater than total revenue ($860m), so there is a Budget Deficit. This means government spending exceeds its revenue and the shortfall must be financed through borrowing.

WAEC Economics 2016 Theory — Question 1

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