Sources of Public Revenue and Classification of Taxes

PUBLIC REVENUE
Public Revenue is an important concept of Public Finance. It refers to the income of the
Government from different sources. Dalton in his “Principles of Public Finance” mentioned two kinds
of public revenue. Public revenue includes income from taxes and goods and services of public
enterprises, revenue from administrative activities such as fees, fines etc. and gifts and grants. On the
other hand public receipts include all the incomes of the government received from formal sources.
SOURCES OF PUBLIC REVENUE
The sources of public revenue have been broadly divided into:
(A) Tax Revenue (B) Non-Tax Revenue
(A) 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. Taxes do not guarantee any direct benefit for
person who pays the tax. It is not based on “quid pro quo principle.”
According to P.E. Tayler, “Taxes are compulsory payments to government without expectation
of direct return or benefits to the tax payer”.
Characteristics of a Tax:
i) A tax is a compulsory contribution to the State from the citizen

ii) Another characteristics of tax is that the tax imposes a personal obligation. It means that it
is the duty of tax payer to pay it and he should in no case think to evade it.
iii) The third characteristics is that the contribution, received from the tax payer, may not be
incurred for their benefit alone, but for the general and common benefit.
 Classification of Taxes
The Tax has been divided into two types such as Direct Taxes and Indirect Taxes.
Direct Taxes:
Direct taxes are those taxes which are paid by the same person on whom it has been imposed. The
impact and incidence of tax fall on the same person, because the tax burden cannot be shifted to others.
Direct taxes include the following taxes.
i) Personal Income Tax is a tax imposed on the excess income earned by an individual over and above
the limit decided by the finance ministry form time to time. It is progressive in nature.
ii) Corporate Tax is a tax levied on the profits earned by registered companies.
iii) Capital Gains Tax is a tax imposed on the net profits earned through capital investment in stock
market , Real estate, Gold and Jewellery etc.
iv) Wealth Tax (or) Property Tax is a tax levied upon the property owned by individuals. The
property includes Land, Building, shares, Bonds, Fixed Deposits, Gold and Jewellery etc.
v) Other Taxes :These taxes include taxes like Gift Tax and Estate Duty.
Indirect Taxes:
Indirect taxes are those taxes which are imposed on one group of people, but the ultimate burden
will fall on another group of people. The impact of tax and incidence of tax are on different people. In
case of Indirect taxes tax burden can be shifted. There are middlemen between the Government and
the tax payer. The important Indirect Taxes are as follows:
i) Excise Duty is a tax imposed on the manufacturers as per the value of goods produced but the
ultimate burden will fall on the final consumers.
ii) Customs Duty is a tax imposed on import and export of Goods. Customs duty may be specific or
advalorem. Advalorem duty is a tax imposed on the basis the value of goods imported while specific
duty is imposed as per the number of units imported.
iii) Value Added Tax (VAT) is a part of a sales tax imposed by the state government.
iv) Sales Tax revenue goes to the state government when sale or purchase takes place within the state.
Sales tax revenue on interstate transactions goes to the central government.
v) Service Tax is tax imposed on services provided. The impact is on the service provider and the
incidence of tax false on the customers. Service tax is the fastest growing tax in India.
vi) Octroi is a tax levied on transfer of goods from one state to another or from one region to another.
(B) Non-Tax Revenue
These sources of revenue are classified as administrative revenues, commercial revenues and grants
and gifts.
1) Grants:
Grants are made by a higher public authority to a lower one, for example, from the Central to the
State government or from the State to the local government. Grants are given so that a public authority
is able to perform certain activities at the local level. There is no repayment obligation in case of grants.
2) Gifts:
Gifts and donations are voluntarily made by individuals, organizations, foreign governments to the
funds of the government, e.g. Prime Minister’s Relief Fund. Such gifts are usually made at the time of
crisis like war or floods. Gifts cannot be considered a regular source of revenue.
3) Fees:
Fees are an important source of administrative non-tax revenue to the government. The government
provides certain services and charges, certain fees for them. For example, fees are charged for issuing
of passports, granting licenses to telecom companies, driving licenses etc.
4) Fines and Penalties:
Another source of administrative non-tax revenue includes fines and penalties. They are imposed as
a form of punishment for breaking law or non-fulfilment of certain conditions or for failure to observe
some regulations. They are not expected to be a major source of revenue to the government.
5) Special Assessment:
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 public park in a locality or due to
the construction of a road, people in the locality may experience an appreciation in the value of their
property or land.
6) Surpluses of Public Enterprises:
Most countries have government departments and public sector enterprises involved in commercial
activities. The surpluses of these departments and enterprises are an important source of non-tax
revenue. These revenues are in the form of profits and interests and are termed as commercial revenues.
7) Borrowings:
When government revenue is not sufficient to meet the public expenditure government borrows
either from internal or external sources. Borrowing is income of the government which creates liability
because the government has to repay the borrowings with interest.

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Sources of Public Revenue and Classification of Taxes

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PUBLIC REVENUE

SOURCES OF PUBLIC REVENUE

The sources of public revenue have been broadly divided into:

(A) Tax Revenue (B) Non-Tax Revenue

(A) Tax Revenue

i) A tax is a compulsory contribution to the State from the citizen

(B) Non-Tax Revenue

4) Fines and Penalties:

6) Surpluses of Public Enterprises:

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