What are the different sources of Public Revenue? Explain in detail.

Explain different direct and indirect taxes imposed by the government of India.

What are the principal sources of Public Revenue? Explain clearly.

Ans.

Introduction

Public revenue, an indispensable organ of public finance operation, includes all income and receipts of the government through various sources. Different means of revenue to the government are called sources of public revenue. Source of public revenue can be broadly divided into two categories such as – (1) earned revenue and (ii) unearned revenue. Earned revenue is the kind of revenue which is received from certain assured sources kept under the complete disposal of governmental ownership. It includes public domain like rent, royalties, sales of forest products, etc. commercial revenues like profits of public sector enterprises, public, utility services, etc. Unearned revenue is that revenue which is mobilised by the government without any contractual obligations to the payee. It includes taxes, fines and forfeitures, special assessment levies, escheats, gifts and grants, etc.

Sources of Public Revenue or Revenue Receipts: The government raises revenue from the public in different ways. It includes tax revenue and non-tax revenue. Revenue received by the government from different sources is known as revenue receipts. Revenue receipts satisfy following two related characteristics –

(1) These receipts do not create any corresponding liability for the government.

(ii) These receipts do not cause any reduction in assets of the government.

Different sources of public revenue or revenue receipts of the government are shown in the following chart –

(1) Tax Revenue : Tax is a compulsory payment by the citizens to the government to meet the public expenditure. It is legally imposed by the government on the tax payer and in no case tax payer can deny to pay taxes to the government. The tax payer also cannot expect any service or benefit from the government in return of tax payment. Thus, there is no quid pro quo or give and take relationship in taxation. Tax can be direct or indirect. Income tax, wealth tax, gift tax, etc., are the examples of direct tax and sales tax, excise duty, customs duty, etc., are the examples of indirect tax.

Note: Details of tax revenue have been discussed in next chapter.

(2) Non-tax Revenue : Non-tax revenue are those receipts which are received from sources other than taxes like fees, fines, etc. Some of the non tax receipts are as follows –

(1) Fees, Licence and Permit: One of the main sources of non-tax revenue of the government is fees, licence and permit.

(a) Fees: A fee is a payment to the government for the services that it renders to the people.

Examples of fees are: Land registration fees, birth and death registration fees, passport fees, court fees, etc.

Main features of fees are as under-

(i) Fee is a compulsory payment: If a person wants to avail a service, he is required to pay fees for it. (ii) Fee provides specific benefit to the payer but it also implies general advantage. (iii) Fee is not a payment (price) for commercial service. It is a payment for administrative and judicial services provided to the people. (iv) Ordinarily, amount of fee is equivalent to the cost of service provided.

(b) Licence and Permit: The amount that government charges for allowing the people to perform a given job, is called licence or permit fees. “Licence fees are charged to give permission for something by the government.” Its examples are driving licence, import licence. There is difference between fees and licence fees. Licence fees are paid when a person is permitted to do some specific job by the government. No service is provided to the licenceholder.

On the contrary, in case of fees, the payer receives some service from the government. When the government is not willing to authorise some persons to do a particular job, it refuses licence to them. By issuing licence to liquor vendors, government controls the sale of liquor.

(2) Escheat: Escheat refers to that income of the state which arises out of the property that comes to it for want of a legal heir. Such a property has no claimant. State alone has the legal right over it.

(3) Special Assessment: It is yet another source of non-tax revenue of the government. Special assessment is that payment which is made by the owners of those properties whose value has appreciated due to developmental activities of the government. For instance, when as a result of construction of roads or provision of sewerage system or construction of drains, etc., value of the neighbouring property or its rental value appreciates, then a part of the developmental expenditure is recovered from the owners of such property by way of special assessment.

(4) Fines and Penalties: Fines and penalties are those payments which are made by the law breakers to the government by way of economic punishment. The aim is not to earn revenue. Its actual aim is to force the people to be law abiding (follow the rules and regulations). It is determined by the government in an arbitrary manner, and not on the basis of administrative cost. It is not an important source of revenue of the government.

(5) Income from Public Enterprises: Several public enterprises are owned by the government. For instance, Indian Railways, Nangal Fertilizer Factory, Indian Oil, Bhilai Steel Plant, etc. Profit from sale proceeds of the products of these enterprises constitutes the income of the government. Income from these enterprises depends on the price of their products.

(6) Gifts and Grants: Gifts received by the government are also source of revenue. In the event of some natural calamities (like earthquake, floods, famines) or during wars, citizens of the country often give large gifts and donations to the government. Such gifts are also received by the government from rest of the world. International organisation like WHO, UNESCO, etc also give grants for different purposes.