PUBLIC REVENUE AND ITS SOURCES

F .Y BANKING AND INSURANCE

GROUP MEMBERS

1.NEELAM KOLI 22. HUMERA KHAN

Governments need to perform various functions in the field of political, social & economic activities to maximize social and economic welfare. In order to perform these duties and functions government require large amount of resources. These resources are called Public Revenues.

A Tax is a compulsory contribution made by the citizens and residents of a country to the government. It is required to meet its general expenses incurred in the common interest of all. Prof.Seligman defines a tax thus: tax is a compulsory contribution from the person to the government to defray the expenses incurred in the common interest of all without reference to special benefits conferred.

CHARACTERISTICS OF TAX
The following are the characteristics of a tax :1. A tax is a compulsory payment made to the government. People on whom a tax is imposed must pay the tax. Nonpayment of tax is a punishable offence. 2. 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. 3. Every tax involves some sacrifice on part of the tax payer. 4. 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.

NONNON-TAX REVENUE
The revenue obtained by the government from sources other then tax is called NonTax Revenue. The sources of non-tax revenue are :-

a)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-proquo 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.

b) Administrative revenue:- Here we have revenues from the administrative activities

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)Licence Fee
A licence fee is like a fee as defined above. But slightly differs from it. This is because the authority of government is invoked to confer a permission or a privilege on the fee payer. Such fees may be charged for the registration of the firms, registration of cars, liquor permits ,driving licences, etc. Fees are compulsory, prices are voluntary.

3) 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.

4) 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 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) Forfeiture Forfeitures of bails or bonds refer to the penalties imposed by courts for the failure of individuals to appear in courts, to complete contracts as stipulated to safeguard valuable assets. They are not important as a source of revenue.

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.

So far we studied the sources of public revenue.Public receipts would include public revenue and the following three items.

1.Borrowing from public

In order to cover its budgetary deficit, a government may borrow from individuals and financial institutions within the country as also from foreign countries and international financial institutions. Loans taken by a government from internal sources may be voluntary or compulsory.

2.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.

A government secures income in the form of rent, land revenue etc., as also in the form of proceeds from the sale of its assets like land, gold etc. This is an insignificant source of its income.