Source Of Public Revenue

INTRODUCTION

The government performs various functions in the field of political, social and economic activities to maximise social and economic welfare. In order to perform these functions and duties, the government requires large amount of resources. Such resources are raised from various sources. The resources raised in the form of money are called public revenue.

Source Of Public Revenue

TAX REVENUE

The revenue received by the government from the imposition of taxes is known as tax revenue. A tax is a compulsory contribution imposed by a public authority. A tax payer does not receive a definite and direct quid-pro-quo from the government. It means that those who are taxed have to pay taxes irrespective of any corresponding return of goods and services by the government.

(a) Direct taxes are imposed on income and wealth. e.g. income tax, wealth tax, etc.

(b) Indirect taxes are imposed on purchase or sale of commodities e.g. Sales tax, Excise and Custom duties or Goods and Services Tax (GST).

CHARACTERISTICS OF A TAX

1. A tax is a compulsory payment to the government. The people who becomes liable to pay tax should pay the tax. Refusal to pay the tax is an offence and will be met with punishment.
2. There is no quid-pro-quo between the tax payer and the public authority. This means that the tax payer cannot claim any specific benefit in return for the payment of a tax.
3. There is no direct give and take relationship between a tax-payer and the tax - levying public authority.
4. Every tax involves some sacrifice on the part of the tax payer.

NON TAX REVENUE

The revenue received by the government from sources other than tax revenue is known as non tax revenue. As compared to tax revenue, non tax revenue may be compulsory or voluntary. 

1. Administrative Revenues:

The government while performing its administrative functions derives certain revenues. Therefore they are termed as administrative revenues. The important sources of these revenues are:

(a) Fees: 

A fee is charged by public authorities for rendering a service to the people. Seligman has defined fees as a payment to defray the cost of each recurring service undertaken by the government, primarily in the public interest, by conferring a measurable special advantage to the tax payer. Thus, a fee is that revenue which is paid to the government for the special services rendered by it.e.g.driving licences.

(b) Fines and Penalties:

Fines and penalties are a sort of punishment or suffering or loss imposed on individuals in money terms for breach of law or non-fulfilment of some condition or undertaking or for failure to observe the conditions of a contract. Fines and penalties are intended to act as deterrents.

Fines are compulsory charge from offenders of law. They are compulsory payments without any quid-pro-quo. But they differ from taxes because they are imposed to prevent or to curb certain offences and not to earn income for the government. They account for a small portion in total revenue.

(c) Special Assessment (or a betterment levy):

Seligman defines it as "a compulsory contribution levied in proportion to the special benefit derived, to defray the cost of a specific improvement to property undertaken in the public interest." It is a special charge collected from certain members of the community who receive certain special benefits from government activities or projects. e.g. park facilities, irrigation facilities, road construction, etc.

(d) Prices: 

The government produces and sells certain goods, like steel, fertilizers, etc. and services like transport and communication, electricity, water supply, etc. in public interest. Prices are the revenues derived by the government through sale of these goods and services.

(e) Profits from Public Enterprises: 

In order to provide 'merit goods', the government owns and operates many undertakings in the interest of the community.In this process, the government earns profit from state or public enterprises. e.g. surplus earnings from railways, State transport, banks, etc.

2. Gifts and Grants: 

When financial assistance is received from one government to another government it is known as grants. In the case of India a financial assistance from the central to the state government is known as grants in-aid.In India grants are also made to the state government in order to finance their deficits in state budgets. Grants are also made to meet some emergencies in the form of relief funds.

3. Deficit Financing: 

In an ordinary sense deficit financing implies an excess of public spendings over public revenue. The gap is filled by printing more currency. This method is inflationary because it adds to existing money supply in the economy and creates new demand for goods and services. This leads to the rise in price level.

4. Borrowings: 

When the budgeted public expenditure exceeds the budgeted public revenue, the gap is filled by resorting to borrowing. It may be compulsory or voluntary. They may be internal or external, i.e. domestic borrowing or foreign borrowing. They have a repayment liability with interest.

5. Miscellaneous Sources: 

This includes revenues received from sale of public assets, claim of state to private properties unclaimed bank deposits, etc. Income from public property and sale of public assets is a relatively minor source of receipts. The government often owns property in the forms of land and buildings and earns rent on it. The government may sometimes also resort to sale of some of its assets like gold, etc., in the market.