Sources of Govt. Revenue –
Introduction To Public Revenue ↓
Governments need to perform various
functions in the field of political, social & economic activities to
maximise social and economic welfare. In order to perform these duties and
functions government require large amount of resources. These resources are
called Public Revenues.
Public revenue, consists of taxes,
revenue from administrative activities like fines, fees, gifts & grants.
Public revenue can be classified into two types.
A. TAX REVENUE
B. NON TAX REVENUE
Tax Revenue ↓
Taxes are the first and foremost
sources of public revenue. Taxes are compulsory payments to government without
expecting direct benefit or return by the tax payer. Taxes collected by
Government are used to provide common benefits to all mostly in form of public
welfare services. Taxes do not guarantee any direct benefit for person who pays
the tax. It is not based on direct quid pro quo principle.
The following are the
characteristics of a tax :-
- A tax is a compulsory payment made to the government.
People on whom a tax is imposed must pay the tax. Refusal to pay the tax
is a punishable offence.
- There is no quid pro quo between a taxpayer and public
authorities. This means that the tax payer cannot claim any specific benefit
in return for the payment of a tax.
- Every tax involves some sacrifice on part of the tax
payer.
- A tax is not levied as a fine or penalty for breaking
law.
The government collect tax revenue
by way of direct & indirect taxes. Direct taxes includes; Corporate tax;
personal income tax capital gain tax and wealth tax. Indirect taxes includes
custom duty, central excise duty, VAT and service tax.
In 2006-07 (India related), the tax
revenue contributed about 81% of the total revenue receipts of the central
government, whereas non-tax revenue receipts contributed the remaining 19%.
Non-Tax Revenue ↓
The revenue obtained by the
government from sources other then tax is called Non-Tax Revenue. The sources
of non-tax revenue are :-
1. Fees
Fees are another important source of
revenue for the government. A fee is charged by public authorities for
rendering a service to the citizens. Unlike tax, there is no compulsion
involved in case of fees. The government provides certain services and charges
certain fees for them. For example, fees are charged for issuing of passports,
driving licenses, etc.
2. Fines or Penalties
Fines or penalties are imposed as a
form of punishment for breach of law or non fulfillment or certain conditions
or for failure to observe some regulations. Like taxes, fines are compulsory
payments without quid pro quo. But while taxes are generally imposed to collect
revenue. Fines are imposed as a form of punishment or to prevent people from
breaking the law. They are not expected to be a major source of revenue to the
government.
3. Surplus from Public Enterprises
The Government also gets revenue by
way of surplus from public enterprises. In India, the Government has set up
several public sector enterprises to provide public goods and services. Some of
the public sector enterprises do make a good amount of profits. The profits or
dividends which the government gets can be utilized for public expenditure.
There is some sort of quid-pro-quo in the case of surplus from public
enterprises. This is because, the public gets goods and services, and the
government gets prices, and consequently profits from selling such goods and
services.
4. Special assessment of betterment levy
It is a kind of special charge
levied on certain members of the community who are beneficiaries of certain
government activities or public projects. For example, due to a public park in
a locality or due to the construction of a road, people in that locality may
experience an appreciation in the value of their property or land. Thus, due to
public expenditure, some people may experience 'unearned increments' in their
asset holding. Betterment levy is like a tax because it is a compulsory
payment, but unlike a tax, in case of betterment levy there is some element of
quid pro quo.
5. Grants and Gifts
Gifts are Voluntary contributions by
individuals or institutions to the government. Gifts are significant source of
revenue during war and emergency.
A grant from one government to
another is an important sources of revenue in the modern days. The government
at the Centre provides grants to State governments and the State governments
provide grants to the local government to carry out their functions.
Grants from foreign countries are
known as Foreign Aid. Developing countries receive military aid, food aid,
technological aid, etc. from developed countries.
6. Deficit Financing
Deficit means an excess of public
expenditure over public revenue.
This excess may be met by borrowings
from the market, borrowings from abroad, by the central bank creating currency.
In case of borrowing from abroad, there cannot be compulsion for the lenders,
but in case of internal borrowings there may be compulsion. The government may
force various individuals, firms and institutions to lend to it at a much lower
rate than the market would have offered.
