What does Public Revenue mean? Public revenue money receives by a Public. The article on Public Revenue: Introduction, Meaning, Definition, Sources, and Classification. Each explains as, Introduction to Public Revenue, Meaning of Public Revenue, Definition of Public Revenue, Sources of Public Revenue, and Classification of Public Revenue. It is an important tool for the fiscal policy of the Public and is the opposite factor of Public Spending.
Here are explain the Concept of Public Revenue; their key points – Introduction, Meaning, Definition, Sources, and Classification.
By Wikipedia; Revenues earned by the government are received from sources such as taxes levied on the incomes and wealth accumulation of individuals and corporations and the goods and services produced, exports and imports, non-taxable sources such as government-owned corporation’s incomes, central bank revenue and capital receipts in the form of external loans and debts from international financial institutions. It is used to benefit the country.
Governments use the revenue to better develop the country, to fix roads, build homes, fix schools, etc. The money that the government collects pays for the services that are provided for the people. The public sector in three concepts very important, Public Finance, Public Expenditure, and Public Revenue.
Introduction to Public Revenue:
Governments (Public) need to perform various functions in the field of political, social & economic activities to maximize social and economic welfare. To perform these duties and functions, the government requires a large number of resources. The revenues from different sources received by the government call public revenues. Some regularly collect whereas some irregularly collect.
These resources call Public Revenues. Public revenue consists of taxes, revenue from administrative activities like fines, fees, gifts & grants. Revenues are not repayable. Some of them are obtained from the sale of public utilities whereas some are obligatory payments to the government.
Meaning and Definition of Public Revenue:
The income of the government through all sources calls public income or public revenue.
According to Dalton, however, the term “Public Income” has two senses — wide and narrow. In its wider sense, it includes all the incomes or receipts which a public authority may secure during any period. In its narrow sense, however, it includes only those sources of income of the public authority which are ordinarily known as “revenue resources.” To avoid ambiguity, thus, the former is termed “public receipts” and the latter “public revenue.”
As such, receipts from public borrowings (or public debt) and the sale of public assets are mainly excluded from public revenue. For instance, the budget of the Government of India is classified into “revenue” and “capital.” “Heads of Revenue” include the heads of income under the capital budget are termed as “receipts.” Thus, the term “receipts” includes sources of public income that are excluded from “revenue.”
There are both revenue receipts and capital receipts. Revenue receipts are derived from taxes of different forms. Capital receipts include primary internal market borrowing and also external loans. However, the bulk of state revenue comes from internal sources. The major point of distinction between the two is that while the former has the receipts or earnings of the people as the source, the later has the public property as the source.
Sources of Public Revenue:
The following key points highlight the two main sources of public revenue from India.
- Tax Revenue, and.
- Non-Tax Revenue.
A] Tax Revenue:
Taxes are the first and foremost sources of public revenue. It is compulsory payments to the government without expecting direct benefit or return by the taxpayer. Taxes collected by Government are used to provide common benefits to all mostly in the form of public welfare services. They do not guarantee any direct benefit for the person who pays the tax. It is not based on a direct quid pro quo principle.
Features of Tax Revenue:
The main characteristic features of a tax are as follows:
- A tax is a compulsory payment to pay by the citizens who are liable to pay it. Hence, the refusal to pay a tax is a punishable offense.
- There is no direct, quid pro quo between the tax-payers and the public authority. In other words, the taxpayer cannot claim reciprocal benefits against the taxes paid. However, as Seligman points out, the state has to do something for the community as a whole for what the taxpayers have contributed in the form of taxes.“But this reciprocal obligation on the part of the government is not towards the individual as such, but towards the individual as part of a greater whole.”
- A tax is levied to meet public spending incurred by the government in the general interest of the nation. It is a payment for an indirect service to make by the government to the community as a whole.
- A tax is payable regularly and periodically as determined by the taxing authority.
Taxes constitute a significant part of public revenue in modern public finance. Taxes have macro-economic effects. Taxation can affect the size and mode of consumption, the pattern of production and distribution of income and wealth. Progressive taxes can help in reducing inequalities of income and wealth by lowering the high-income group’s disposable income.
Disposable income is meant the income left in the hands of the taxpayer for disbursement after-tax payment. Taxes imply a forced saving in a developing economy. Thus, taxes constitute an important source of development finance.
Types of Tax Revenue:
The following types below are;
1] Union Excise Duties:
They are, presently, by far the leading source of revenue for the Central Government and are levied on commodities produced within the country, but excluding those commodities on which State excise is levied (viz., liquors and narcotic drugs). The most important commodities from the revenue point of view are sugar, cotton, mill cloth, tobacco, motor spirit, matches, and cement.
Customs duties include both import and export duties. These are the second-most important source of revenue for the Central Government.
3] GST Tax:
Goods and Services Tax is an indirect tax levied in India on the supply of goods and services. GST levies at every step in the production process but is meant to refund to all parties in the various stages of production other than the final consumer.
India’s biggest indirect tax reform in the form of Goods and Services Tax (GST) has completed plus 1 year. A comprehensive dual GST was introduced in India from 1 July 2017.
4] Income Tax:
Income tax is at present another important source of revenue for the Central Government. It levies on the incomes of individuals, Hindu undivided families, and unregistered firms.
5] Corporation Tax:
The income-tax on the net profits of joint-stock companies calls corporation tax.
6] Wealth Tax:
It is an annual tax on the net wealth of individuals and Hindu undivided families. It is a progressive tax.
7] Gift Tax:
It is a tax on gifts of property by an individual in his lifetime to future successors.
8] Capital Gains Tax:
It applies to capital gains resulting from the sale, exchange or transfer of capital assets.
9] Hotel Expenditure Tax:
Recently, a new tax has been levied on those who patronize high-class hotels.
10] Tax on Foreign Travel:
Another new tax levied on foreign travel for conserving foreign exchange as well as to raise revenue.
B] Non-Tax Revenue:
The revenue obtained by the government from sources other than the tax calls Non-Tax Revenue. Public income received through the administration, commercial enterprises, gifts, and grants is the source of non-tax revenues of the government.
The following sources of non-tax revenue below are:
1] Interest Receipts:
This largest non-tax source of Central Government’s revenue receipts is the interest it earns mainly on the loans it has advanced to State Governments, to financial and industrial enterprises in the public sector.
2] Surplus Profits of the Reserve Bank of India (RBI):
The surplus profits of the RBI is also a part of the revenues of the Central Government. In recent years, these have been quite substantial because of the large borrowing by the Government from the RBI against Treasury Bills for financing the Five-Year Plans.
3] Currency, Coinage, and Mint:
The Government also derives income from running the Currency Note Printing Presses. Moreover, profits are made from the circulation of coins — this profit is the difference between the face value of the coins and their manufacturing cost.
The railways in India are owned and run by the Government of India. Accordingly, they pay a fixed dividend to general revenues, i.e., to the Central Government, on the capital invested in the railways. Besides, a part of the net profits made by the railways is also payable to the Central Government.
5] Profits of Public Enterprises:
Public enterprises owned by the Central Government, e.g., the Steel Authority of India (SAIL), Hindustan Machine Tools (HMT), Bharat Heavy Electricals Ltd. (BHEL), State Trading Corporation (STC). The profits of such Public Sector Units (PSUs) are another source of revenue for the Government of India.
6] Other Non-Tax Sources of Revenue:
The main source among them is the Departmental Receipts of the various ministries of the Central Government by way of fees, penalties, etc.
Classification of Public Revenue:
A scientific classification enables us to know in what respects these various sources resemble one another and in what ways they differ. Different economists have classified the sources of public revenue differently. Of the various classifications of public revenue available in economic literature, we shall review a few important ones.
1. Taylor’s Classification:
The most logical and scientifically based classification of public revenue is however provided by Taylor. He divides public revenue into four categories:
- Grants and gifts.
- Administrative revenues, and.
- Commercial revenues.
Grants and gifts:
Grants-in-aid are how one government provides financial assistance to another to enable it to perform certain specified functions, for example, education and health grants made to the states by the central government.
Grants-in-aid are the cost payments made by the grantor government and revenue receipts to the grantee, and no obligation of repayment involves. Gifts are voluntary contributions from individuals or institutions for specific purposes. Grants and gifts are voluntary and there is the absence of quid pro quo to the donor.
These are compulsory payments made to the government without expecting a direct return of benefits. The taxes involve varying degrees of coercive powers.
Under this group, fees, licenses, fines, and special assessments include. Most of these are voluntary and based upon the direct benefits accruing to the payer. They generally arise as a by-product of the administrative or control function of the government.
These are the receipts by way of prices paid for government-produced goods and services. Under this group, postal charges, tolls, interest on loans of state financial institutions or nationalized banks, tuition fees of public educational institutions include.
2. Dalton’s Classifications:
Dalton provides a very systematic, comprehensive and instructive classification of public revenue. In this opinion, there are two main sources of public revenue — taxes and prices. Taxes pay compulsorily whereas prices pay voluntarily by individuals, who enter into contracts with the public authority. Thus, prices are contractual payments.
Taxes are sub-divided into:
- Taxes in the ordinary sense.
- Tributes and indemnities.
- Compulsory loans, and.
- Pecuniary penalties for offenses.
Prices are sub-divided into:
- Receipts from public property passively held such as rents received from the tenants of public lands.
- Receipts from public enterprises charging competitive rates.
- Fees or payments charged for rendering administration services, such as birth and death registration fees, and.
- Voluntary public debt.
These two groups must add to another group to make the classification exhaustive. Under this group, the following items include:
- Receipts from public monopolies, charging higher prices.
- Special assessments.
- The issue of new paper money or deficit financing, and.
- Voluntary gifts.
3. Seligman’s Classification:
Seligman classifies public revenue into three groups:
- Gratuitous revenue.
- Contractual revenue, and.
- Compulsory revenue.
Gratuitous revenue; comprises all revenues such as gifts, donations, and grants received by the public authorities free of cost. They are entire of a voluntary nature. Further, these are very insignificant in the total revenue.
Contractual revenue; includes all those types of revenue which arise from the contractual relations between the public authority and the people. Fees and prices fall into this category. A direct quid pro quo is usually present in these types of revenue.
Compulsory revenue; includes the income derived by the state from administration, justice, and taxation. Taxes, fines, and special assessments regard as compulsory revenue. These revenues express an element of state sovereignty. It is the most significant type of public revenue in modern times.