Explain various sources of public revenue.

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Economics

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QUESTIONS

Explain various sources of public revenue.

Explain the concept of public revenue and

its sources.

Answer in Brief

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SOLUTION

Public revenue means the aggregate

collection of income with the government
through various sources. Public revenue
holds a permanent position in the study of
public finance which is part of the study of
economics. Thus, the necessity of public
revenue arises due to public expenditure.

The main sources of public revenue are as

follows.

Sources of Public Revenue:

A. Taxes
B. Non-tax Revenue

A) Taxes:

There are two main types of taxes. They

are:

Direct Tax
Indirect Tax

1) Direct Tax: It is paid by the taxpayer on

his income and property. The burden of tax
is borne by the person on whom it is levied.
As he cannot transfer the burden of the tax
to others, the impact and incidence of the
direct tax fall on the same person. For
example personal income tax, wealth tax,
etc.

2) Indirect Tax: It is levied on goods or

services. It is paid at the time of production
or sale and purchase of a commodity or a
service. The burden of an indirect tax can
be shifted by the taxpayer (producers) to
another person/s. Hence, the impact and
incidence of tax are on different heads. For
example, the newly implemented Goods
and Services Tax (GST) in India has
replaced almost all indirect taxes, and
customs duties.

B) Non-Tax Revenue Sources:

Public revenue received by the government

administration, public enterprises, gifts,
grants, etc is called non-tax revenue. These
sources are different than the taxes. Brief
information about these sources is as
follows:

1) Fees: A tax is paid compulsorily without

any return service whereas, a fee is paid in
return for certain specific services rendered
by the government. For example- education
fees, registration fees, etc.

2) Prices of public goods and services:

Modern governments sell various types of
commodities and services to the citizens. A
price is a payment made by the citizens to
the government for the goods and services
sold to them. For example-railway fares,
postal charges etc.

3) Special Assessment: The payment

made by the citizens of a particular locality
in exchange for certain special facilities
given to them by the authorities is known as
a ‘special assessment.’ For example, local
bodies can levy a special tax on the
residents of a particular area where extra/
special facilities of roads, energy, water
supply, etc. are provided.

4) Fines and Penalties: The government

imposes fines and penalties on those who
violate the laws of the country. The
objective of the imposition of fines and
penalties is not to earn income, but to
discourage the citizens from violating the
laws framed by the Government. For
example, fines for violating traffic rules.
However, the income from this source is
small.

5) Gifts, Grants, and Donations: The

government may also earn some income in
the form of gifts from the citizens and
others. The government may also receive
grants from foreign governments and
institutions for general and specific
purposes. Foreign aid has become an
important source of development finance
for a developing country like India.
However, this source of revenue is
uncertain in nature.

6) Special levies: This is levied on those

commodities, the consumption of which is
harmful to the health and well-being of the
citizens. Like fines and penalties, the
objective is not to earn income, but to
discourage the consumption of harmful
commodities by the citizens. For example,
duties levied on wine, opium, and other
intoxicants.

7) Borrowings: The government can

borrow from the people in the form of
deposits, bonds, etc. It also gets loans from
foreign governments and organizations
such as IMF, World Bank, etc. Loans are
becoming a more and more popular source
of revenue for governments in modern
times.

Structure of Public Finance - Public Revenue

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Chapter 8: Public Finance in India - Answer in detail

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SCERT Maharashtra Question Bank 12th

Standard HSC Economics Maharashtra State
Board
Chapter 8 Public Finance in India
Answer in detail | Q 1

2021-2022 (March) Model set 1 shaalaa.com

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2021-2022 (March) Set 1 (with solutions)

RELATED QUESTIONS

Choose the correct option:

Non-tax sources of revenue:
a) Direct and Indirect Tax
b) Direct Tax and Fees
c) Fees
d) Special Levy

Identify the right group of pairs from the given

options.
Group A Group B

i) Direct tax a) Non-tax revenue

ii) Indirect tax b) Inflation

iii) Fees and

c) GST
Fines

iv) Surplus d) Personal income

budget tax

Distinguish between the following concept:

Direct tax and Indirect tax.

State with reason whether you agree or disagree

with the following statement:
Fines and penalties are a major source of
revenue for the Government.

Essential characteristics of a tax:

a. It is a voluntary contribution to the
government.
b. Every citizen of the country is legally bound to
pay the tax imposed upon him.
c. Tax is imposed on income, property or
commodities or services.
d. The tax payer receives direct and
proportionate benefits from the government in
return for the tax.

Non tax revenue sources:

a. Special assessment
b. Fines and penalties
c. Goods and Services tax
d. Gifts, grants and donations

Income tax: Direct tax :: GST : ______.

Tax paid at the time of production or sale and

purchase of a commodity or service −

Find the odd word

Non-tax revenue -

Identify & explain the concept from the given

illustration.
Prakash paid an income tax of ₹ 62,000/- during
the accounting year 2018-2019.

Explain any four non- tax sources of public

revenue

Complete the correlation.

Personal Income tax : ______ :: Goods and
service tax (GST) : Indirect tax.

Identify the right group of pairs from the given

options.
i) Direct tax a) Non tax revenue

ii) Indirect tax b) Inflation

iii) Fees and fines c) GST

iv) Surplus Budget d) Personal income tax

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