Fiscal Policy- Public Revenue
Introduction Public revenue is the income of government from various sources. It can be classified into tax revenue and non-tax revenue. The tax is very important source of revenue. The tax has been segregated into two types i.e. direct tax (paid by the person on whom it is legally imposed) and indirect tax (imposed on one person but paid partly or wholly by another). The sources of non-tax revenue are classified as administrative revenue, commercial revenue, loans and advances and grants-in-aid. Adam Smith has enunciated canons of taxation which includes canon of equity, canon of certainty, canon of simplicity, canon of economy and canon of convenience. Taxation can also be classified on the basis of degree of progression of tax as proportional tax, progressive tax, regressive tax and degressive tax. Sources of revenue of central government are income tax, corporate tax, wealth tax, gift tax, estate duty and expenditure tax. The sources of indirect tax include sales tax, custom duty, exercise duty, service tax and entertainment tax. Non-tax revenue for the central government includes fiscal services, dividend and profits, economic services, administrative services, receipts from interest on loans and social and community services. Tax revenue of state government includes tax on agricultural income, land tax, excise duty on alcoholic liquors and narcotics, entertainment tax and stamp duties. Non – tax revenue includes income from irrigation and forests, loans and overdrafts, income from registration and excise and estate duties and debt services. There is another type of tax that is independent of income. It is called the lump sum tax.
What is meant by commercial revenue?Marks:3
Commercial revenue means revenue received by the government in the form of prices paid for government supplied commodities and services i.e., revenues derived from the government from their own production units called public enterprises. For instance nationalised banks, Industrial Finance Corporation of India, LIC etc.
Explain direct and indirect taxes.Marks:3
Direct taxes: Direct taxes are those taxes, which are paid by the persons on whom they are legally imposed. Direct taxes cannot be shifted to other person. These taxes are generally imposed on income and property of the person. Examples are, income tax, corporation tax, wealth tax etc.
Indirect taxes: Indirect taxes are those taxes, which are imposed on one person, but their burden falls on another person. Indirect taxes are shifted to other person by adding with the price of the commodity. Indirect taxes are generally imposed on production and sale of the commodities. Examples of indirect taxes are sales tax and excise duty.
Discuss the difference between progressive and regressive taxation.Marks:3
Progressive and regressive taxation system is very different from each other. The main difference between progressive and regressive tax system are following:
i. Progressive tax is a system of taxation in which rate of tax increases with increase in income but in case of regressive taxation rate of tax decreases with increase in income.
ii. In Progressive taxation system the burden of tax is more on the rich and less on the poor, whereas in regressive taxation system the real burden of tax is more on poor and less on the rich.
Write one condition under which government borrows.Marks:1
If the revenue collected from tax and non-tax sources fall short of the expenditure of government, in that case government receives loan from financial institutions, public or foreign government, etc.
Give one example of regressive tax.Marks:1
Regressive tax is the tax wherein the rate of tax decreases with the increase in the income. Example: sales tax.