Q.What are the main sources of public revenue available to a government?

Public revenue is the income of the government. Its sources fall into two groups: tax revenue (direct taxes like income and corporate tax, and indirect taxes like GST, customs and excise) and non-tax revenue (fees, fines and penalties, prices of public services, interest and profits of public enterprises, gifts, grants and special assessments).

Meaning

Public revenue refers to the income received by the government from all sources to meet its expenditure on administration, defence, development and welfare. It is a major part of public finance.

Sources of public revenue

A. Tax revenue: A tax is a compulsory payment to the government with no direct quid pro quo (no direct return). It is divided into:

• Direct taxes — borne by the person on whom they are levied, such as income tax, corporate (company) tax and wealth tax.
• Indirect taxes — levied on goods and services and ultimately paid by the consumer, such as Goods and Services Tax (GST), customs duty and excise duty.

B. Non-tax revenue: Income that the government earns from sources other than taxes, such as:

• Fees — payments for a service rendered, like court fees and registration fees.
• Fines and penalties — payments imposed for breaking the law, meant to discourage offences.
• Prices of public goods and services — charges for services supplied by the government such as railways, postage and electricity.
• Interest and dividends / profits — earnings from loans advanced by the government and profits of public sector enterprises. …

Public expenditure is government spending on its various functions. Its chief items include defence, administration, law and order and justice, public-debt servicing, developmental spending (education, health, agriculture, industry, transport and other infrastructure), social-welfare and subsidy payments, and grants to lower levels of government.

Meaning

Public expenditure means the expenditure incurred by the central, state and local governments to perform their duties and to promote the economic and social welfare of the people.

Various items of public expenditure

1. Defence expenditure: spending on the armed forces, weapons and national security.
2. Administrative expenditure: salaries and running costs of the general administration, legislature, executive and government departments.
3. Law, order and justice: police, courts and the maintenance of internal security and justice.
4. Public-debt servicing: payment of interest on government loans and repayment of borrowed principal.
5. Developmental expenditure: spending on education, public health, agriculture, irrigation, industry, power, transport, communications and other infrastructure.
6. Social-welfare and subsidies: pensions, poverty-relief and employment programmes, and subsidies on food, fertiliser and fuel.
7. Grants and transfers: grants-in-aid to state governments and local bodies. …

Public revenue is the income of the government. It comes from two main sources: (1) tax revenue — direct taxes (income tax, corporate tax, wealth tax) and indirect taxes (GST, customs and excise duties); and (2) non-tax revenue — fees, fines and penalties, prices of public goods and services, special assessment, gifts and grants, escheat, and the surplus/profits of public sector undertakings.

Meaning

Public revenue means the income received by the government from all sources to meet its expenditure. It is broadly classified into tax revenue and non-tax revenue.

1. Tax revenue

A tax is a compulsory payment made to the government by the people without any direct return (quid pro quo). Tax revenue is of two types:

• Direct taxes: taxes whose burden cannot be shifted; the person on whom the tax is imposed also bears it — for example, income tax, corporate tax, wealth tax.
• Indirect taxes: taxes whose burden can be shifted on to others, generally the final consumer — for example, Goods and Services Tax (GST), customs duty and excise duty.

2. Non-tax revenue

This is the income the government earns from sources other than taxes:

• Fees: payments charged for a specific government service, e.g. court fees, licence fees, registration fees.
• Fines and penalties: sums collected as punishment for breaking laws; their aim is to prevent offences, not to earn income.
• Prices of public goods and services: income from goods and services the government sells, e.g. railway fares, postage, electricity charges.
• Special assessment: a charge levied on property owners who gain from a public improvement (such as a new road) near their property.
• Gifts and grants: voluntary contributions and grants received from individuals, institutions or foreign governments, usually in emergencies.
• Escheat: property that passes to the government when a person dies without any legal heir or will.
• Profits of public enterprises: the surplus earned by government-owned undertakings (public sector units).

Summary table

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