Pricing Manual for Government Services
First Edition
July 2013
Table of Contents
1.
2.
3.
4.
Page number
INTRODUCTION
3
1.1
Background
4
1.2
Purpose of the guide
4
1.3
The structure of the guide
5
1.4
Interpreting the provisions of the guide
5
1.5
The legal basis
5
PROCESS OF INTRODUCING / AMENDING FEES OF GOVERNMENT SERVICES
7
2.1
8
Process of introducing / amending fees of government
PRINCIPLES OF COST RECOVERY
11
3.1
Charges associated with cost recovery
13
3.2
Process of applying cost recovery
14
3.3
Applying a well-designed cost recovery framework
16
PRICING FORMULATION AND IMPLEMENTATION GUIDE
18
4.1
Methodologies for pricing services
19
4.1.1 Cost-based pricing
19
4.1.2 Benchmark-based pricing
20
4.1.3 Competition-based pricing
22
4.1.4 Time-based pricing
24
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Introduction
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1. INTRODUCTION
1.1
Background
This guide has been developed to assist in determining the standard procedures to be followed
by all ministries and government entities in the Kingdom of Bahrain when developing or
adjusting the value of fees. In many instances, the approach deployed for pricing may differ
from one service to another or from one ministry/government entity to another.
The motivation behind preparing the guide derived from the need to set standard procedures
for ministries and government entities in pricing their services they provide in a logical, cost
effective, competitive and accountable manner while maintaining the quality and value
associated with the services provided.
1.2
Purpose of the guide
Government revenues are one of the key pillars that contributes in the country’s economy,
therefore the importance of developing a manual to set standard procedures and methods has
arisen and which mainly aims to the following:

Develop mechanisms and standardized procedures for the ministries and
government entities to determine and adjust the value of government services fees.

Select appropriate methodology to determine and adjust the value of government
services fees for the construction of an effective revenue system.

Link the methodology for determining and adjusting the value of government
services fees to the government's fiscal policy.
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1.3
Application of the Guide
This guide assists ministries and government entities, which apply the provisions of the Decree
Law No. (39) for the year 2002 on the state budget and its amendments, including the
ministries and other government entities and local authorities of municipalities and public
institutions, including the government entities with independent budgets whereas it does not
violate their laws of establishment.
1.4
Interpreting the provisions of the Guide
1.4.1 Public Revenue Development Affairs in the Ministry of Finance has the authority to
interpret the texts contained in this guide.
1.5
The Legal Basis

Article 107 of the Constitution:
o “A- Creating a public tax, amending or eliminating it can only be done by a law.
No one shall be exempt from all or part of it, except in cases specified by the law.
o B- The law demonstrates the provisions on the collection of taxes, and other
public funds, and disbursement procedures…”

Article 5 of Law Decree No. (39) for the year 2002 on the public budget: The Ministry is
in charge of placing the general economic development strategy of the Kingdom, as well
as the development and implementation of government economic and fiscal policies
and to follow-up on their implementation, to insure financial stability, economic growth
and the development of the government’s fiscal policy framework in light of the
macroeconomic policy. The ministry also reviews and evaluates the economic and fiscal
programs and conducts economic planning…”
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
Article 16/B of the Legislative Decree No. (39) for the year 2002 on the state budget:
“Imposing fees must be within the limits of the law, also its categories and the
proportions of its increase or decrease are decided by a ministerial directive after the
Cabinets approval, unless the law provides otherwise. The Cabinet is authorized to
delegate the minister to determine the categories and the proportions of its increase or
decrease.”
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-
Process of Introducing / Amending Fees of
Government Services
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2.
PROCESS OF INTRODUCING / AMENDING FEES OF GOVERNMENT SERVICES
2.1
Process of introducing / amending fees of government services
Fees amount should be within the limits of the law. The determination of fee categories and
amendments in its proportions is done through a directive by the concerned minister after
obtaining an approval from cabinet, unless contrarily specified by the law. Cabinet has the
authority to delegate the relevant minister to determine fee categories, and the amendments
in its percentages (According to article 16 of law no. 39 for year 2002 about state budget).1
The process of introducing / amending fees of government services are performed in stages as
presented in the following graph:
of
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1) Proposal preparation: All ministries and government entities should coordinate with the
Ministry of Finance when introducing or amending levy of duties & fees and consider the
following aspects (as also indicated in the Standard Finance Manual under Revenue Systems):

Goals or justifications to levy or amend fees

Economic & social effects on levying or amending fees

Bases adopted in determining categories of fee

Comparing expected revenues with existing revenues and specifying the basis used
in estimating the expected revenues

Relationship between cost of government services and the suggested fees, and
determining the percentage of recovered costs

Extra costs (if any) for collecting these fees

Suggested mechanism to collect these fees and the cost of its collection

Relationship between the suggested fees and other government authority’s fees

Amendments required to the existing systems and laws

Exempted categories (if any)
2) Proposal revision: The Ministry of Finance alongside the relevant government entity
discusses the proposal in depth and considers the appropriateness, applicability and the
legal aspect of it. Also more consideration is given to the organizational and procedural
matters for the application of the proposal, as well as the social and economic impacts it
may encounter.
3) Preparation and submission of memorandum to Cabinet: When all aspects of the
proposal have been clarified and studied thoroughly, an official memorandum is then
prepared to be submitted to the Cabinet. The memorandum can be joint between the
Ministry of Finance and the concerned ministry / government entity if the memorandum
contains one or more initiatives belonging to one ministry / government entity. But in
the case of preparing a memorandum to a range of initiatives to more than one ministry
/ government entity then it can be prepared solely by the Ministry of Finance.
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4) Cabinet approval: Discussions take place to finally approve or disapprove the
initiative(s).
If it gets approved, a directive is issued by the Cabinet approving the implementation of
the recommendation of the memorandum.
If the initiative get disapproved, the Cabinet could transfer the proposal(s) to the
concerned Ministerial Committee for further study or the concerned ministry will have
to go back to step number (5).
5) Preparation of a draft / amendment of the legislation to introduce or modify the fees
in accordance with the proposal: In the case where a fee is introduced it must be done
within the limits of the law, If the law does not exist the concerned ministry should
prepare a draft law in coordination with other concerned entities in order for it to be
issued.
On the other hand, if the proposal only requires issuance of a ministerial directive then
the directive is drafted and issued by the concerned ministry / government entity then
later the date of implementation is determined and published in the Official Gazette
making it binding and finalized for implementation.
6) Cabinet approval of drafted legislation: The drafted legislation is submitted to Cabinet
to be discussed and approved.
7) Law issuance: Once the drafted legislation receives its final approval from the
Legislative Authority then the law / legislation gets issued.
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Principles of Cost Recovery
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3.
PRINCIPLES OF COST RECOVERY
Principle of cost recovery provides that a charge should be set to recover some or all the costs
incurred in the provision of the service. Cost recovery attempts to regain the costs of
government-provided or funded services or activities that provide benefits to individuals,
entities or groups, or reflect the costs their actions impose.
The application process can be summarized as demonstrated in the illustration below, which is
also further elaborated in this guide:
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3.1
Charges associated with cost recovery
In practice, there are a number of different charges associated with cost recovery policy. Such
examples are as follows:

Regulatory fees grant access rights or to assist the Government in controlling certain
activities. For example, a charge for permit to build a house or to obtain a driving
license enables the Government to regulate an activity as an instrument of
government policy.

Fees for services are the direct charges for the delivery of a service by the
Government. Some of those services can be also offered in the open market (e.g.
Postal Services); while others are considered unique services offered only by the
Government but are considered officially certified services. Examples of unique
Government services include the charges of providing electricity and water or waste
management fees.
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3.2
Process of applying cost recovery
The policy of cost recovery forms the basis of all pricing of government services. When pricing
deviates from this norm, justifications would then have to be put in place. The importance of
such a process (to justify an increase or a decrease) ensures accountability and transparency.
The process of setting the price according to cost recovery principles are as follows:
1) Determine cost of service provision: The concerned ministry / government entity
should outline a cost estimate of all services in order to promote efficient allocation
of resources and to send the appropriate price signals about the value of all the
resources being used in the provision of their services.
2) Set the methodology intent: Before selecting the appropriate price formulation
strategy, one of the following cost policies should be chosen in order to apply the
correct pricing methodology:
a. Cost plus (+): Cost of service lower than price of fee. Cost plus methodology is
used by ministries and government entities to discourage or deter certain
behaviors or services. For example, impose a fee of BD 5 for the issuance of
driver's license card instead of a lost one while the normal fee of issuance is
BD 2, doing so will encourage drivers to maintain the original card.
b. Cost claim: Cost of service equal to price of fee. Cost claim methodology is
used by ministries and government entities as a pricing norm to common
regulatory services or when a ministry or a government entity is providing
services on commercial basis. Examples include charges on postal packaging
and delivery that is set usually to compete with the private sector. Also fees
of installing vehicles registry plates that are considered a normal regulatory
service.
c. Cost Subsidy (-): Cost of service higher than price of fee. Cost subsidy policy is
usually made by the government on national basis to assist or encourage use
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of a certain service. Selecting this policy is made to encourage efficient
direction of subsidies by the right amount to the right beneficiaries.
Examples of such include subsidizing electricity and water services to assist
consumers, also subsidizing the tuition fees of the higher education
institutions (such as University of Bahrain) to encourage and promote access
to higher education.
3)
Define individuals, segments and bodies that will be charged: Making sure on
whom these methodologies are targeted at are critical to avoid burdens on certain
individuals or entities while also insuring that the appropriate laws and regulations
are issued. This leads to maximizing the efficiency of collecting the fees and charges
implied.
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3.3
Applying a well-designed cost recovery framework
To apply an effective and efficient cost recovery framework the concerned ministry /
government entity must apply measures that can be summed by the following groups:
 Appropriateness: The applied cost recovery methodology must be consistent with
other policy objectives and should be compatible and complementary to the
overarching outcomes that the Government seeks to achieve. For example a
methodology should not lead to adding extra costs on a necessary services like
electricity or water services in a way that restricts a large segment of society from
benefiting.
 Efficiency: Cost recovery policy require that charges are set at a level that recover
the minimum costs of providing the service at the required quality, where quality is
not effected by the amount recovered.
 Review and monitor: This will ensure that the methodology chosen continues to be
appropriate and based on relevant costs. This process can be divided into two main
parts:
o
Determining the appropriate cost recovery methodology: without a
regular review of a certain price hidden subsidies could be incurred
and hence deviating from the original cost recovery policy
undertaken.
o Finding a wholesome methodology for revenue collection: Which is
considered one of the most important aspects to be looked into when
preparing revenue development proposals in order to maintain the
fee and its policy.
When cost recovery is the basis of pricing, and all pricing is determined as a cost plus or
cost subsidy from the cost recovery price, then regular reviews are needed to keep pace
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with inflation, increasing expenses, etc. Failure to keep pace may lead to unsustainable
subsidies provided.
On the other hand, if the government becomes more effective and cost efficient, the
cost of providing such services would be more accurate and more expected. The
beneficiary of such a situation will be the citizens and consumers.
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Pricing Formulation & Implementation
Guide
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4. PRICING FORMULATION & IMPLEMENTATION GUIDE
4.1
Strategies and Methodologies for Pricing Services
The pricing mechanism selected provides direction on how services will be priced. Below is a
description for a number of basic and most common methods used to price government
services:
4.1.1 Cost-based pricing
Cost-based pricing is the mechanism that takes into consideration the costs of materials
and operating overheads.
Some of the key steps involved in implementing this methodology are as follows:
1) Identifying costs of producing the service
2) Determining the strategy to be in place (cost plus, cost recovery, cost
subsidy) according to the nature of the service and to whom it is targeted
3) Set a percentage or a fixed amount to be added to the cost and into the
formulation of the price
Example: Electricity tariffs
Cost of
providing
electricity
services:
28 fils KWh
Pricing policy:
Support service
at variable rates
based on
consumption
levels, offering
higher support
rates for lower
consumption
segments
Tariffs for domestic
consumption
Source: Electricity and Water Authority
This mechanism is mostly suitable when the required service to be priced has clearly
identified cost drivers that can be determined and calculated.
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4.1.2 Benchmark-based pricing
Benchmark-based pricing mechanism is based on comparing price ranges of the same
service within different countries. When conducting benchmarks and comparisons
between countries, it is critical to consider the following factors:

Laws and regulations of the Kingdom of Bahrain

Economic structure and size

Social aspects

Culture and standards of living

Geographic size and environment

Regional competitiveness

Others
The key steps of implementing benchmark-based pricing are as follow:
1) Narrowing down the scope of countries to be benchmarked by the most
relevant to the standards set in place
2) Identifying and analyzing how the service is produced in the selected
countries
3) Determining the price of the service and identifying the targeted
beneficiaries/segments and exemptions in the selected countries
4) Apply amendment in price formulation of the fee (where applicable)
according to bench-mark analysis with careful consideration to all factors
stated above.
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Example: Smart Card issuance fees
Price of service in UAE
100 Dirhams
Price of service in Oman
5 Riyals
Price service in Singapore
10 Singaporean
Dollars (around
BD 3)
Price in Bahrain
2 Bahraini Dinars
Source: CIO Bahrain, Oman Police Authority, Emirates Identity
Authority, Immigration & Checkpoints Authority of Singapore
This mechanism is best to be used in setting benchmarks for the price range but not the
actual price charged.
Each country differs in one or more of the benchmarking
standards hence making it difficult to emulate the exact prices for the ministry /
government entity’s services. Therefore benchmark-based pricing methodology usually
involves another mechanism to set the actual price. Although benchmarking is highly
important to ensure that whatever price is in place it is also aligned with the set of
standards established.
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4.1.3 Competition-based pricing
This mechanism involves setting prices based on what competitors in the private sector
are charging. If there is a competition in the market, consumers are faced with the wide
choice of who to purchase the service from.
The ministry / government entity that provides services that are also offered in the open
market should not tend to set the prices above their competitors. They should use the
ongoing rate of pricing in order to maintain their aim of offering services that are in
reach to all. In order to implement this mechanism the key steps are generally the
following:
1) Understanding the market segment which the service competes in
2) Identify the market leaders within the market segment of the service
3) Determine the ongoing price rate of the given service
4) Set the price rate to be compatible with the ongoing price rate
Example: Postal services to send 0.5 kg
\
Company 1
Company 2
Express post
Price Charged = BD 26
Price Charged = BD 17
Bahrain Post Premier
fee: 5 dinars
Source: Ministry of Transportation, International companies of postal
services in Bahrain
Using competition-based pricing mechanism requires the need to provide non-price
methods to compete in order for the ministry / government entity to increase their
revenues by increasing the customer base and provide a higher standard of a
government service.
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This mechanism is used to price government services that have direct competition in the
open market such as pricing postal services, building consultancy services or advertising
services over radio or TV.
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4.1.4 Time-based Pricing
This pricing mechanism sets prices depending on the time on which the service is
provided and is delivered. The rationale behind it is set to control the demand scale of
the service at the time and to better regulate them. Another reason for using this
methodology is to serve the services in a “fast track” manner by giving the customer the
option to pay more in order to receive the service faster.
Time-based pricing can be implied in many instances whereby time can be crucial in the
usage of the service. It is recommended to be used by ministries / government entities
that produce or regulate services that are environmental or health related, or also the
services that can be provided in shorter time for those who need the service faster than
the regular time it takes. Some of the key factors to consider in implementing timebased pricing are:

Identifying critical peak times on which the services is mostly consumed

Identifying to whom and/or where those services are targeted

Setting the new rate charge for the peak times or “fast track services”
Example: Parking meters in the diplomatic area
Period
Rush hour
traffic
Location
Target
Fees
Diplomatic
Area
To regulate the
traffic and the
time period for
the use of public
parking
To impose a fee
of 200 fils for
two hours from
7 am to 2 pm
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This mechanism is used when pricing time-oriented services like regulating traffic,
where no heavy vehicles are allowed to be driven during peak hours to avoid congested
traffic jams or accidents and any heavy vehicles driven at that specific time would be
fined.
Example: Appointments to issue Smart Card
Fees with
appointment
Fees without
appointment
(Fast Track Service)
2 BD
10 BD
Such mechanism is used to regulate the procedure in which a service is served also to
add an optimal method of serving the same service by shortening the procedure timing.
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Ministry of Finance
Public Revenue
Development Affairs
[email protected]
Fax: (+973) 17532813
P.O.Box: 333 Manama
Kingdom of Bahrain
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