Public Revenue: Tax & Non-Tax Revenue, Direct & Indirect Taxes, Progressive and Non-Progressive Taxation, Incidence and Effects of Taxation | Notes

Meaning of Public Revenue

Public revenue refers to the income of the government obtained from all sources for the purpose of financing government expenditure and carrying out its functions. According to Dalton, public revenue includes all the income and receipts of the government, irrespective of their source, but in a narrower sense it refers only to those sources of income of the government which are ordinarily termed as “revenue” of the government, and which are raised through the exercise of its sovereign or legal powers. Public revenue is broadly classified into tax revenue and non-tax revenue, and forms the receipt side of public finance, as opposed to public expenditure which forms the expenditure side. The study of public revenue is central to public finance, since it examines how governments mobilize resources to perform allocative, distributive, and stabilization functions in the economy.

Public revenue can also be classified, following Dalton, into two broad categories: (1) revenue receipts, which are receipts that do not create a liability or reduce assets of the government (such as taxes and fees), and (2) capital receipts, which either create a liability or reduce assets (such as loans and disinvestment proceeds). The present notes focus principally on revenue receipts, with special emphasis on taxation as the most important source.

Tax Revenue

• Tax revenue is the revenue obtained by the government through the imposition of taxes. A tax has been defined by classical economists such as Seligman as “a compulsory contribution from a person to the government to defray the expenses incurred in the common interest of all, without reference to special benefits conferred.”

• The essential characteristics of a tax are as follows:

  • First, a tax is a compulsory payment; no citizen can refuse to pay a tax that has been legally imposed, and refusal invites legal penalty.

  • Second, a tax involves no direct quid pro quo, meaning the taxpayer cannot claim any specific service or benefit from the government in return for the tax paid; this distinguishes a tax sharply from a fee, which does involve a direct service rendered.

  • Third, taxes are levied for the common benefit of the community as a whole rather than for the benefit of any particular individual.

  • Fourth, taxes are imposed by the state under its sovereign power, and non-payment is a punishable offence.

• Tax revenue forms the income of government realized from various taxes such as income tax and GST, while non-tax revenue comes from the other sources like fees and charges for services, fines, dividends from the state-owned enterprises, and interest on loans. These together make up the internal revenue receipts of any government that can be utilized for public services. In simple terms, tax revenue means the income earned by governments from compulsory levies on people and businesses. Most importantly, it serves as the main source for running the government, establishing infrastructures, funding social programs, and providing other public services to the general public. The importance of tax revenue lies in analyzing fiscal policies, economic impact, and distribution of the financial burden within society.

• Tax revenue is the money a government gets through taxes levied on individuals and organizations as mandatory payments made to it. Taxation becomes very important for financial stability as well as growth. Tax Revenue, or tax generation, is the income that the government collects by enforcing its duties to different persons and businesses through law. This system of payment does not offer any direct advantage in return to the person paying it and forms, therefore, the major aspect of income for any government.

• Tax revenue must include both forms of taxes:

  • Direct taxes: for example income tax.

  • Indirect taxes: like GST.

  • It serves as the principal revenue source receipts for most governments.

  • Key point: However, the taxpayer is not entitled to any direct benefit in return for paying taxes.