Difference Components of Revenue and Capital Receipts |Micro Economics

Difference Components of Revenue and Capital Receipts!

Components (Sources) of Revenue Receipts:

Revenue receipts of the government are divided into two groups, namely, (i) tax revenue and (ii) non-tax revenue.

Tax revenue consists of proceeds of taxes and other duties levied by the Union government such as income tax, corporate tax, excise duty, customs duty, service tax, etc.

These are shown in the chart earlier discussed. Non-tax revenue consists of all receipts from sources other than taxes as shown in that chart.

Components or sources of revenue receipts are explained below:

(a) Tax Revenue:

Tax revenue consists of proceeds of taxes and other duties levied by the Union government. It is the main source of government revenue. Remember, main objective of any tax system is to raise revenue to fund govt. expenditure in the budget. A tax is legally a compulsory payment imposed by the government on income and profit of persons and companies without reference to any benefit.

Similarly government levies taxes on sales of goods, manufacturing of goods, excise duty, wealth, gifts, properties, exports, imports, etc. The money received from taxes is used by the government to meet the expenditure incurred on providing common benefits to the people. No one can refuse to pay the tax; otherwise, the defaulter is prosecuted and penalised.

The taxpayer cannot demand in exchange for tax payment. For instance, a rich man cannot claim that he would not pay taxes to support schools because he has no children. The Central government collects revenue in the form of various taxes such as income tax, corporate tax, customs duty, excise duty, service tax, expenditure tax, wealth tax, interest tax, etc.

Taxes are of different kinds such as direct and indirect taxes (see Section 9.12), proportional and progressive taxes, etc.

(b) Non-tax revenue:

Income from sources other than taxes is called non-tax revenue. It arises on account of administrative function of the government. These are incomes which the government gets in the form of interest, dividend, profit, fees, fines and external grants as explained below.

It comprises the following items:

(i) Interest:

It is an important source of Government non-tax revenue. Government receives interest on loans given by it to state governments. Union territory governments, local governments, private enterprises and the people

(ii) Profits and Dividends:

Of late government has developed a new source of income by starting its own production units called public enterprises which like private enterprises produce and sell goods and services. For instance Nationalised Banks, Industrial Finance Corporation of India, LIC, STC, HMT, MMTC, BHEL, etc. provide profits. Government also gets dividends on investments made by it.

(iii) Fees and Fines:

Government gets income, though nominal, in the form of different types of fees charged by it, e.g., tuition fees in schools, OPD card fees in hospitals, land registration fees, passport fees, court fees, driving licence fees, import fees, etc. Similarly, government gets income by way of fines and penalties imposed by it on various types of offences committed by the law-breakers.

Forfeitures of basic surety or bond (imposed by courts for non-compliance with orders) and escheat (lapsing of property to state for want of legal heir) are other sources of non-tax revenue. This type of revenue is called administrative revenue since it arises on account of government administrative functions.

(iv) Special Assessment:

When government undertakes development activities like construction of roads, provision of drainage, street lighting in a particular area, the value of nearby property or rental value of houses goes up in the vicinity. Clearly the additional income and profit which the owners of the landed property get is not the result of efforts on their part.

Special assessment is, therefore, like a special tax that government levies in proportion to the benefit accruing to property owners to defray the cost of development. It is a payment made once-for-all by the owners of properties for increase in the value of their properties resulting from development activities of the government.

(v) External grants-in-aid: Government receives financial help from foreign governments and international organisations in the form of grants, donations, gifts and contribution.

Components (Sources) of Capital Receipts:

These are the following:

(a) Recovery of loans and advances:

Loans offered by government to others are government assets because it owns money that it lends. We know that Central Government grants loans to (i) States, Union territories, (ii) public sector enterprises, other parties and (Hi) foreign governments. Recovery of such loans is treated as capital receipts because it causes reduction in assets of the government.

(b) Disinvestment:

Government raises funds from disinvestment also. Disinvestment means selling whole or a part of the shares (i.e., equity) of selected public sector enterprises (like Indian Oil Corporation, Steel Authority of India) held by government to private sector. As a result, government assets are reduced. Sometimes, disinvestment is so termed as privatisation because it involves transfer of ownership of public sector enterprises to private enterprises.

(c) Borrowing (domestic and external):

Funds raised by government from borrowing are treated as capital receipts because they create liability of returning loans. These funds are borrowed from (i) open market, (ii) Reserve Bank of India, {Hi) foreign governments and international organisations. Government resorts to borrowing when its expenditure exceeds its revenue, i.e., when there is fiscal deficit.

(d) Small savings:

Government receipts also include small savings like Post Office deposits. Public Provident Fund deposits, National Saving Certificate deposits, Kisan Vikas Patras, etc.