Sources of Public Revenue

Sources of Public Revenue:

Public Revenue Meaning and Significance: Public expenditure is necessary for the government to perform its various functions for the welfare of society, so it requires public revenue. Public revenue holds the same position in the study of public finance, which production holds in the study of economics. Just as production is the means of consumption, public revenue is the means of public expenditure.

The income of the government through all sources is called public income or public revenue. However, Dalton has defined ‘Public Income’ in a broad and narrow sense, i.e., in terms of ‘Public Receipts’ and ‘Public Revenue’. Public revenue includes income from taxes, prices of goods and services supplied by public enterprises, revenue from the administration activities, such as fees, fines, etc., and gifts and grants; while Public receipts include all the incomes of the government which it may have during a given period of time, i.e., Public receipts = Public revenue + Income from all other sources, such as a public borrowing from individuals and banks and income from public enterprises.

Source of Public Revenue: Various forms of sources of public revenue are taxes, commercial revenues, administrative revenues, grants and gifts.

Grants and Gifts: Gifts are voluntary contributions from private individuals or non-government donors to the government fund for specific purposes, such as relief funds or defense funds during a war or an emergency. Such contributions are made by patriotic, charitably minded, public-spirited, or conscientious persons during the war, floods, drought, or an emergency. Gifts have no significant place in the modern revenue system except during wartime and emergency. They had a place in the olden days when princes, Nawabs and Jagridars used to get Nazarana from their subjects. The total of gifts (as distinguished from grants) does not form a significant amount in the revenue system.

Characteristics of Grants and Gifts: Grants and gifts as a category of receipts are characterized by their voluntary nature, and by the absence of any expectation of direct benefit to the donor. In the case of grants, the donor government gives financial aid for the performance of governmental functions at another level. In federal countries, the Central government generally gives grants-in-aid to the State government and the State government gives grants to the local governments in order to enable them to do their functions successfully or for undertaking specific activities, such as the construction of highways and their maintenance in the interest of uniformity and efficiency in the working. Hence, these grants may be either conditional, unconditional, or for specific purposes only.

Sometimes, the government of one country receives a grant from another country, which is commonly called “foreign aid”. It may be military aid, economic aid, technical aid, and so on. Many advanced and well-developed countries, such as the United States, the Soviet Union, the United Kingdom, Canada, and West Germany, etc., give grants to poor countries for their economic development. Such grants are very useful for underdeveloped countries. But foreign grants are always uncertain and not always unconditional, and this often leads to international difficulties and entanglements. Hence, it is not wise to depend upon foreign aid.