BUDGET RECEIPTS

Revenue receipts

  • Neither create any liabilities for the government; nor cause any reduction in assets of the government
  • Revenue receipts include items, which are repetitive and regular in nature.

Revenue receipts are further classified into:

Tax Revenue:

  • Tax revenue refers to receipts from all kinds of taxes such as income tax, corporate tax, excise duty etc.
  • A tax is a compulsory legal payment imposed by the government on income and profit of persons and companies without reference to any benefit.
  • Taxes are of two types: Direct taxes and Indirect taxes.

Direct Taxes:

  • Liability to pay a tax (Impact of Tax), and (b) the burden of that tax (Incidence of tax), falls on the same person, it is termed as direct tax.
  • A direct tax is paid directly by the same person on whom it has been levied. In other words, burden of a direct tax is borne by the person on whom it is imposed, which means the burden cannot be shifted to others.
  •  Alternatively, the person from whom the tax is collected is also the person who bears the ultimate burden of the tax. Income tax and corporate (profit) tax are most appropriate examples of direct tax.

Indirect Tax: 

  • Liability to pay a tax (Impact of tax) is on one person; and (b) the burden of that tax (Incidence of tax), falls on the other person, it is termed as indirect tax.
  •  In other words, indirect taxes are the taxes of whose burden can be shifted to others. In case of an indirect tax, person first pays the tax but he is able to transfer the burden of the tax to others.
  • For instance, sales tax is an indirect tax. Government collects indirect tax from the seller of the commodity, who in turn realizes the tax amount from the buyer by including it in the price of the commodity. Other examples of indirect taxes are excise duty, custom duty, entertainment tax, service tax etc.

Non-Tax Revenue:

  • Non-tax revenue refers to government revenue from all sources other than taxes.
  • These are incomes, which the government gets by way of sale of goods and services rendered by different government departments.

Components of Non-Tax Revenue:

  1. Commercial Revenue (Profit and interest):
  • It is the revenue received by the government by selling the goods and services produced by the government agencies.
  • For example, profit of public sector undertakings like Railways, BHEL, and LIC etc.
  • Government gives loan to State Government, union territories, private enterprises, public and earns interest receipts from these loans.
  • It also includes interest and dividends on investments made by the government.
  1. Administrative Revenue: The revenue that arises on account of the administrative function of the government. This includes:
  • Fee: Fee refers to a payment made to the government for the services that it renders to the citizens. Such services are generally in public interest and those, who receive such services, pay fees. For example, passport fees, court fees, school fees in government schools.
  • License Fee: License fee is a payment to grant a permission by a government authority. For example, registration fee for an automobile.
  • Fines and penalties for infringement of the law, i.e., they are imposed on lawbreakers.
  1. Special Assessment: 
  • Sometimes government undertakes developmental activities by which value of nearby property appreciates, which leads to increase in wealth. Special Assessment includes the payment made by owners of those properties whose value has appreciated. For example, if value of a property near a metro station has increased, then a part of developmental expenditure made by government is recovered from owners of such property. This is the value of special assessment.
  1. Forfeitures are in the form of penalties imposed by courts that a person needs to pay in the court of law for failing to comply with court orders.
  2. Escheat refers to the claim of the government on the property of a person who dies without having any legal heir or without leaving a will.
  3. External grants: Government receives financial help in the form of grants, gifts from foreign governments and international organisations (IMF, World Bank). Such grants and gifts are received during national crisis such as earthquakes, flood, war etc.

 Capital Receipts:

  • Government receipts that either creates liabilities (of payment of loan) or reduce assets (on disinvestment) are called capital receipts.
  • Capital receipts include items, which are non-repetitive and non-routine in nature.

Components:

  1. Borrowing (Domestic and external): Borrowings are made to meet the financial requirement of the country. A government may borrow money:
  • Domestically: General Public (By issuing government bonds in the open market).
  • Externally: Rest of the world (foreign government and international institutions)
  1. Recovery of Loans and Advances:
  • Loans offered to others are assets of the government. It includes recovery of loans granted by the central government to state and union territory governments.
  • It is a capital receipt because it reduces financial assets of the government.
  • For example, the government of India may give Rs.1000 crore as a loan to the state government of Delhi. Here the value of asset is Rs.1000 crore. When Delhi state government repays Rs.100 crore, the value of the assets of Government of India will reduce to Rs.900 crore. Since, recovery of loan reduces the value of assets, it is termed as a capital receipts.
  1.  Disinvestment: 
  • A government raises funds from disinvestment also. Disinvestment means selling whole or a part of the shares (i.e., equity) of selected public sector enterprises held by government. As a result, government assets are reduced.

Difference between capital receipts and revenue receipts.

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