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What Is Government Revenue?

The income tax is a significant source of revenue for the US government.
Many European countries, including the United Kingdom, use the Value Added Tax (VAT) to collect government revenue.
Property taxes are a source of government revenue.
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  • Written By: Keith Koons
  • Edited By: Jenn Walker
  • Last Modified Date: 19 November 2014
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Government revenue is the income available to fund the activities of a government. Running a country can be very expensive, and governments have a wide range of responsibilities, such as operating the various departments, maintaining an armed force, investing in development, and the alleviation of poverty. Every country has a fixed method of revenue generation that varies from control of a country’s physical resources to taxation of the country's citizenry. Many governments tax citizens directly, based on each household's individual income. In addition to direct taxes, there are also numerous indirect taxes on government services, financial transactions, and commercial activity that also generate revenue.

From the early days of civilization, those in power have always relied on taxation as a method to generate income. In areas ruled by a monarch or dictatorship, most of the income was used at the discretion of the sole ruler. Today, however, government revenue is spent on the operation of the government and for development of the nation. Some governments, particularly those that have high-valued deposits, such as oil or precious metals, rely primarily on natural resources and monopolize the extraction of these resources to generate income. Others generate revenue by directly taxing citizens on items such as income, everyday purchases, and business profits.

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The most recognizable form of direct taxation comes in the form of income tax, wherein the government collects a specified portion of an individual’s annual income. For many countries, this form of taxation accounts for nearly half of the government's total revenue. Most countries also have a set income-level that they enforce in order to avoid taxing the poor and the needy. In fact, the majority of taxation models tax the wealthier far more heavily than the middle class. Income, however, is not the only thing that is directly taxed by the government; property taxes are also a lucrative source of revenue in many countries.

A less noticed but equally important source of government revenue is indirect taxation. Governments indirectly tax everything from the purchase of commodities to banking transactions. Citizens whose incomes are not taxable still contribute every time they buy a commodity or use a government service. Commercial bodies, such as corporate houses and companies, also come under the purview of indirect taxation. In some countries, individual states or regions will often levy additional taxes such as octroi, or sales tax, to raise revenue.

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