The Government Budget is a statement of expected receipts and expected expenditures of the Government (for the coming fiscal year) that reveals the budgetary policy of the Government to achieve the twin objective of growth and stability. The financial/fiscal year is taken from 1st April to 31st March. The Budget unfolds (i) the financial performance of the Government during the past year and (ii) the expected financial performance and Government policies for the coming year. The financial performance is an explanation of what happened during the past year. The budget’s emphasis is more on the other side., i.e. Government programs and policies for the upcoming year. The government budget has two aspects; Revenue and Capital. Revenue consists of transactions that are regular and recurring, and the government receives them in the ordinary course of business. Capital consists of transactions that are non-recurring and not routine.
The revenue budget displays the government’s current receipts and the expenditures that may be covered by those receipts. The statement of anticipated revenue receipts and expenditures for a fiscal year is known as a Revenue Budget. The Revenue Budget consists of Revenue Receipt and Revenue Expenditure.
1. Revenue Receipt
The receipts which neither create liability nor cause any reduction in the government’s assets are known as Revenue Receipt. These are government receipts that do not lead to a claim against the government. Therefore they are called non-redeemable. In simple words, revenue receipts are those estimated receipts of the government during the fiscal year which do not affect the asset or liability status of the government.
Revenue Receipts show the following characteristics; i.e., a receipt will be considered as a revenue receipt if it fulfils the following two conditions:
- If a receipt does not result in any corresponding government liabilities, then it is a revenue receipt. For example, Tax is a revenue receipt since there is no equivalent liability for the government. Taxes are unilaterally mandatory payments made to the government.
- If a receipt does not result in any decline in government assets, then it is a revenue receipt. Tax is a revenue receipt that does not reduce government assets. On the other hand, if the government makes money by selling its stake in a company, its assets are reduced. As a result, these are not considered revenue receipts.
Revenue Receipts can be broadly classified as (i) Tax Revenue and (ii) Non-Tax Revenue.
(i) Tax Revenue
It includes the total of tax proceeds and other duties imposed by the Central government. These are the necessary payments made to the government and in return, the taxpayer cannot expect any direct service or benefit from the government. A tax is a compulsory payment made by an individual, household, or firm to the government without any reference to anything in return.
The main features are:
- The revenue received through taxes is spent on public welfare.
- Taxes are imposed legally; i.e., according to the law of the land.
- It is the person’s responsibility to pay taxes.
- There is no proportionate relationship between the tax and the related social benefits.
The primary source of the government’s regular receipts is tax revenue. To cover daily expenses, the government collects a variety of taxes from the general public, and those who fail to pay taxes face strict punishments.
Tax Revenue can be further classified as:
1. Direct Taxes
Taxes that are imposed on the property and income of individuals and companies, and are paid by them directly to the government are known as Direct Taxes. For example, Corporate Tax, Income Tax, Death Duty, Capital Gains Tax, etc. The features of Direct Taxes are as follows:
- Direct Taxes are imposed on companies and individuals.
- These taxes have a direct impact on the income level and purchasing power of people and also help in changing the level of aggregate demand in the economy.
- The liability to pay tax and the actual burden of the tax lie on the same individual. It means that one cannot shift the burden of paying taxes on others. For example, Income Tax tax is a tax for which the liability to pay the tax and the actual burden lies on the same person to whom the tax is levied.
- Direct Tax Systems can be Progressive, Regressive, and Proportional.
2. Indirect Taxes
Taxes that have an impact on the income and property of individuals and companies through their consumption expenditure are known as Indirect Taxes. For example, GST (Goods and Services Tax). The features of Indirect Taxes are as follows:
- Indirect Taxes are imposed on goods and services.
- The liability to pay tax and the actual burden of the tax lie on different persons. It means that one can shift the burden of paying taxes on others. For example, the liability to pay GST to the government is on the seller. However, the actual burden of the tax lies on consumers because the sellers collect the tax from them.
- Indirect Taxes can be avoided. It is compulsory to pay indirect taxes. However, one can avoid indirect taxes by not entering into the transactions which call for these taxes. For example, one can purchase Khadi Gram Udyog items to avoid paying taxes, as there is no indirect tax on khadi items.
(ii) Non-Tax Revenue
The receipts of the government from all sources other than tax receipts are known as Non-tax Revenue. They consist of interest receipts on the Central Government’s loan, dividends and investment profit made by the government, fees, and other receipts for services rendered by the government. Non-tax revenue includes cash and grant-in-aid received from foreign countries and various international organizations.
The primary sources of non-tax revenue include:
1. Interest: When government provides loans to its state government, union territories, private enterprises, and the general public, it receives interest on the loan. Interest receipts are an essential source of non-tax revenue.
2. Profits and Dividends: The government makes a profit through the public sector enterprises like Indian Railways, BHEL, LIC, etc. It earns profit from the sales of the goods produced by these public enterprises. The government also receives a dividend from its investments in other businesses.
3. Fees: One of the primary sources of non-tax receipts of the government is the fees charged by the government. The government imposes this fee to cover the cost of services provided by it. The government provides various services to the public like birth and death registration fees, land registration fees, court fees, etc., and in return public makes payment to the government which is called fees. The main features of fees are:
- The fee provides a special benefit to the payer.
- The fee is a mandatory payment.
- Fees are not paid for commercial services.
4. Fines and Penalties: These are those payments that are made by those who break the law. For example, a fine for jumping a red light and a penalty for non-payment of tax. The main purpose is to force people to follow laws. It is determined by the government in an arbitrary manner, depending on the degree of the offence.
5. Escheat: It is the income of the government which occurs out of the property which does not have a legal heir. Such property’s income belongs to the government,
6. Special Assessment: It is the payment made by the owner of such properties whose value has increased as a result of the government’s development efforts. For example, property owners who own property close to a metro station are required to pay a special assessment as a way of recovering some of the costs associated with development.
7. Gifts and Grants: Gifts and grants are given to the government both domestically and abroad. This is a temporary source of revenue. Usually, it is received during natural calamities like floods, earthquakes, and war conditions.
8. License and Permit Fee: It is the fee levied by the government in exchange for granting permission for anything. For example, payment of a license fee is required to own a weapon or to apply for a national license for commercial vehicles.
9. Forfeitures: The court imposes penalties for failure to comply with orders, non-fulfilment of conditions of agreement or contract, etc.
10. Income from the Sale of Spectra like 2G and 3G: The significant source of non-tax receipts of the government includes the income from the sale of Spectra.
2. Revenue Expenditure
Revenue Expenditure refers to the estimated expenditure of the government in a fiscal year that does not affect the assets and liabilities status of the government. These expenses are incurred to ensure that government departments run efficiently and cover their ongoing costs, e.g. interest payments, pensions, salaries, subsidies, grants, etc. Also, it is recurring in nature.
Revenue Expenditure shows the following characteristics; i.e., an expenditure will be considered as a revenue expenditure if it fulfils the following two conditions:
- If an expenditure does not result in a decline in government liabilities, then it is a revenue expenditure. For example, expenditure in the form of grants to the state government to deal with natural disasters does not reduce the liability of the government. Therefore, it is considered a Revenue Expenditure.
- If an expenditure does not create any government assets, then it is a revenue expenditure. For example, the expenditure on old-age pensions, salaries, and scholarships by the government is considered a Revenue expenditure as it does not create any assets.
Revenue Expenditure can be further classified into:
(i) Plan Revenue Expenditure
It concerns centralized plans and centralized support for state and union territory plans. For example, expenditure on education, health, law, and order, etc.
(ii) Non-Plan Revenue Expenditure
It includes a vast range of general, economic, and social services of the government. For example, expenditure as a relief to earthquake victims, etc. Non-plan expenditure relates to the expenditure on the government’s everyday operations.