Test: Public Revenue - Class 10 MCQ

Public revenue is the total income that the government earns to carry out developmental activities such as building roads, hospitals, and schools. Unlike household or business income, this money is collected for the welfare of the entire nation. Without public revenue, no government can function smoothly.

Taxes form the backbone of public revenue. They are compulsory payments made by individuals and businesses. Since every citizen has to contribute, the amount collected through taxes is far greater than any other source of revenue.

Non-tax revenue comes from sources other than taxes. Court fees, school admission fees, and license fees are classic examples. They are not compulsory like taxes but are paid in return for specific services provided by the government.

A tax is compulsory. Citizens pay it without expecting any direct benefit in return. For example, paying income tax does not guarantee a road built outside your house, but the money goes into overall public welfare.

Taxes are compulsory contributions with no direct benefit. Prices, on the other hand, are paid only by those who purchase a particular good or service. When you pay for a bus ticket, you are paying a price. But when you pay income tax, it benefits society at large.

When the government runs industries or enterprises like railways, post offices, or oil companies and earns income by selling their goods or services, it is called commercial revenue. This is different from taxes or administrative fees.

Administrative revenues include fees, forfeitures, fines, and the Right of Escheat. For example, if a person dies without legal heirs, the government has the right to take over the property or bank balance.

Direct taxes like income tax are paid directly by the individual on whom they are levied. The burden of payment cannot be passed on to anyone else. For example, if you earn income, you yourself must pay income tax.

Indirect taxes like GST and excise duty are collected from producers or sellers but are passed on to consumers through higher prices. For instance, when GST is added to the price of a product, the consumer ultimately pays the tax.

Direct taxes follow the principle of “ability to pay.” The rich pay a higher share while the poor pay less or sometimes nothing. This ensures fairness and social justice in the tax system.

Since direct taxes rely on self-declaration of income, people may hide their earnings or show false accounts. This makes tax evasion a common issue, reducing government revenue.

Indirect taxes are included in the price of goods, making them convenient. People pay in small amounts every time they buy something, without feeling the burden of a lump-sum payment.

Since indirect taxes are included in the price of goods, consumers spend a larger share of income on taxed items, leaving little for savings. This reduces investment and affects economic growth.

Impact of tax refers to the immediate person on whom the tax is imposed. For example, a shopkeeper pays sales tax initially, but he may shift it to the consumer.

Incidence of tax refers to the final resting place of the tax burden. For example, though the shopkeeper pays sales tax at first (impact), the incidence falls on the consumer who pays a higher price.

Progressive tax follows the principle of equity. As income rises, the tax rate also rises. This reduces inequality by making the rich contribute more to public revenue.

In a proportional tax, the tax rate is fixed, regardless of income. For example, everyone pays 10% of their income, whether they earn Rs 2000 or Rs 20,000.

In regressive taxation, although the total tax amount increases, the percentage of income paid as tax falls for higher-income groups. Thus, the poor suffer more as they spend a larger share of their income on taxes.

Degressive taxation is partly progressive and partly proportional. The tax rate increases up to a certain income level but becomes fixed thereafter. It balances equity with simplicity.

Heavy taxes on harmful and non-essential items discourage their use by making them expensive. This not only protects public health but also helps allocate resources to more productive sectors of the economy.