1. GOVERNMENT BUDGET AND THE
ECONOMY
(Module – ½ PDF)
PREPARED BY
MRS TANUPRIYA SINGH
PGT (ECO),
AECS-2, JADUGODA
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2. IMPORTANT POINTS TO DO
(i) GOVERNMENT BUDGET – INTRODUCTION
(ii) OBEJECTIVES OF GOVERNMENT BUDGET
(iii) STRUCTURE OF GOVERNEMNT BUDGET
(iv) BUDGET RECEIPTS
(a) REVENUE RECEIPTS
(b) CAPITAL RECEIPTS
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4. GOVERNMENT BUDGET
Budget is a statement of expected receipts and expenditure of the
government over the period of a financial year, April 1 – March
31.
OBJECTIVES OF GOVERNMENT BUDGET
(i) GDP growth
(ii) Reallocation of resources,
(iii) Provision of Public Goods,
(iv) Redistribution of income and wealth,
(v) Balanced regional growth,
(vi) Employment opportunities,
(vii)Economics stability.
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6. BUDGET RECEIPTS
Budget Receipts are the estimated money receipts of the
government from all sources during a fiscal year.
REVENUE RECEIPTS
Revenue Receipts are those money receipts of the government
which show the following two characteristic:
(i) These receipts do not cause any reduction in asset of the
government
Ex: Income from public sector enterprises.
(ii) These receipts do not create any liability for the
government
Ex: Tax receipts of the government.
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7. Revenue receipt are broadly classified as Tax
Receipts and Non- Tax Receipts.
TAX RECEIPTS
A tax is compulsory payment to the government by the
households, firms or other institutional units.
Ex:- Income Tax, Corporation Tax, Estate Duty, Gift Tax,
Customs Duty, Excise Duty, GST(Goods and Tax)
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8. Types of Taxes
(i) Progressive and Regressive Taxes
(depending on the real burden of taxation)
Progressive Tax: A tax is said to be progressive when the rate
of tax increases with an increase in income. So that ,the real
burden of tax is more on the rich and less on the poor.
Regressive Tax: A tax is said to be regressive when it causes
a greater real burden on the poor than the rich.
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9. (ii) Value Added Tax or VAT and Specific Taxes
(depending upon the tax base)
Value Added Tax or VAT: Value added tax is an indirect tax
which is imposed on ‘ value added’ at the various stages of
production.
Specific Tax: When a tax is levied on a commodity on the
basis of its units, size or weight, it is called the specific tax.
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10. (iii) Direct Tax and Indirect Taxes
(depending on their final burden)
Direct Tax : A direct tax is the one the final burden of which
is borne by the person on whom it is imposed.
Ex: Income Tax , corporation profit tax
Indirect Tax : An indirect tax is the one whose initial burden
or impact is on one person but he succeeds in shifting the
burden to another persons.
Ex: GST, custom duty
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11. NON- TAX RECEIPTS
Non- tax receipts are those receipts which arise from sources
other than taxes. Some of the non- tax receipt are as follows:
(i) Fees: A fee is a payment to the government for the
services that it renders to the people. Ex: land registration
fees, passport fees, etc.
(ii) Fines: Fines are those payment which are made by the
law breakers to the government.
(iii) Grants/Donation: Grants are also a source of government
revenue.
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12. (iv) Escheat: Escheat refers to that income of the state which
arises out of the property left by the people without a legal
heir. Their is no claimants of such property. The government
makes revenue out of it.
(v) Special Assessment: Special assessment is that payment
which is made by the owner of those properties whose value
has appreciated due to developmental activities of the
government.
(vi) Income from Public Enterprises: Several enterprises are
owned by the government. Profit of theses enterprises are a
source of revenue for the government.
Ex: Indian railways, Bhilai Steel plant
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13. TAX RECIEPTS
INCOME TAX
CORPORATION TAX
ESTATE DUTY
GIFT TAX
CUSTOMS DUTY
EXCISE DUTY
GST
NON- TAX RECIEPTS
FEES
FINES
GRANTS
ESCHEAT
SPECIAL ASSESSMENT
INCOME FROM PUBLIC
ENTERPRISES
CONSTITUENTS OF REVENUE RECEIPTS
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14. CAPITAL RECEIPTS
Capital receipts are those money receipts of the government
which shows the following two characteristics:
(i) These receipts create a liability for the government.
Ex: loans by the government are liability.
(ii) These receipts cause reduction in assets of the
government.
Ex: Money received by the government by selling
its shares cause reduction in assets of the government.
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15. Capital Receipts of the government budget are often
classified as under:
(i) Recovery of loans: The central government offers loans to
the state government to cope with financial crises. When
these loans are recovered, assets of the government are
reduced. Accordingly, these are classified as capital receipts.
CAPITAL RECEIPTS
(I)
RECOVERY
OF
LOANS
(II)
BORROWINGS
AND
OTHER LIABILITIES
(III)
OTHER RECEIPTS
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16. (ii) Borrowings and other liabilities: While lending creates
assets, borrowing creates liability. Accordingly , borrowing
are to be treated as capital receipts. It may be noted that the
government borrows money from:
(a) the general public
(b) the Reserve Bank of India.
(c) the rest of the world.
(iii) Other Receipts: These include items like ‘ disinvestment’.
It is the opposite of investment. Disinvestment occurs when
the government sells off its shares of public sector enterprises
to private sector.
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CAPITAL RECEIPTS REVENUE RECIEPTS
(i) Capital receipts impact asset- liability
status of the government.
Assets are lowered
or
Liabilities are raised
(i) Revenue receipts do not impact asset-
liability status of the government.
Assets and liabilities are not
increased or decreased.
(ii) Capital receipts often leave burden on
future generations.
Ex: Borrowings leave the burden on
future generation for the repayment of
loans.
(ii) Revenue receipts do not leave any
burden on future generations.
(iii) High capital receipts(borrowings and
disinvestment) point to poor financial
health of the economy.
(iii) High revenue receipts (as tax
receipts) point to sound financial health
of the economy.
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