Income received from tax and non- tax source is known as government revenue. Government has different responsibilities in modern social welfare states. To perform all these functions, it should have income. Government collects income from tax sources i.e. direct + indirect tax and non-tax sources i.e. fine, fees, royalty, interest, dividends, etc.
Sources of government revenue:
1. Tax sources:
It is levy imposed by the government on the income wealth and capital gains of persons as well as business. It is a compulsory payment which has no direct benefit provided for the tax payer. Taxes are used to raise revenue of the government as a means of spending in the development of the economy. It may be divided into two headings:
a. Direct tax:
Tax imposed by government on the income, wealth and capital gains of persons and business (i.e. profit) is known as direct tax. The impact and incidence both of direct tax lay on same person or business of those who have income, wealth and profit. So, it does not shift from person to person.
b. Indirect tax:
Tax imposed by government on the goods and services is known as indirect tax. It is shifted from one person to another. So the impact and incidence of taxation does not lie under same person. VAT, custom, duties and excise duties are some example of indirect tax.
2. Non- tax sources:
a. Grants and gifts:
The fund provided by the individuals or institutions of a country to the government voluntarily for public welfare is known as gifts and grants. They are mainly given for humanitarian purpose this type of fund is generally received by a country when it is suffering from flood, earthquake, famine, etc.
b. Fine and penalties:
Fine are the charges imposed on person as a punishment for violation of the law and order of the state. It has objective to prevent the repetition of violation of law and order. Similarly, penalties are the amount to be paid for the violation of bail or bond.
c. Receipts from sale of product of government enterprises. It is an income received from sale of commodities and services of government enterprises or public enterprises.
d. Interest and dividend:
Interest and dividend received from public properties and public enterprises are also the sources of non tax revenue. It is received from various sectors such as financial institution, business sector, industrial sector and other service agencies.
e. Royalties:
It is an agreed payment made to the owner of an intellectual property right (IPR). For eg: royalties are paid for patent, copyright, mountaineering expedition, etc mining.
3. Foreign Grants:
After 1950 A.D., external sources as a means of foreign grants are also considered as a source of income. They have significant role in development expenditure. It is a source of finance available to the government to meet their different needs. The foreign grants are received from bilateral and multilateral sources such as ADB, IMF, WB, IFC, IDA, OPEC, etc.