Tax & Budget Concepts

A tax is a compulsory payment levied on the persons or companies by the State to meet the expenditure incurred on conferring common benefits upon the people. Tax is a compulsory payment and no one can refuse to pay it and proceeds from taxes are used for common benefits of the people of the State.

Direct and Indirect Taxes

The distinction between direct and indirect taxes is based on whether or not the burden of a tax can be shied to others. If a tax is such that its burden cannot be shied to others and the person on whom the tax is imposed, actually pays it to the Government, it is called direct tax. Income tax, wealth tax, capital gains tax are examples of direct taxes On the other hand, indirect taxes are those whose burden can be shied to others so that those who pay these taxes to the Government do not bear the burden but pass it on wholly or partly to others. For instance, excise duty, sales tax or value added tax (VAT) are known as indirect taxes.

Specific and Ad-valorem Taxes

Indirect taxes can be either specific or ad-valorem. A specific tax on a commodity is a tax per unit of the commodity, irrespective of its price. Thus a specific tax is also known as �per-unit tax�. Excise taxes are specific taxes. On the contrary, an ad-valorem tax is a tax which is a fraction of the price (value) of the commodity.

VAT is an ad-valorem tax.

Progressive, Proportional and Regressive Taxes

Taxes (say, income tax) can be progressive, proportional or regressive. In case of proportional tax, the same rate of tax is charged for different levels of income. A progressive tax is one for which tax rates become higher as income level rises. A tax is said to be regressive if rate of taxes decreases as income level rises. Income tax structure in India is progressive, whereas indirect tax structure like taxes on essential items like, salt, matchbox, etc. is regressive.

Budget Concepts

Expenditure Budget

It contains expenditure estimates made for a scheme or programme under both revenue and capital heads. These estimates are brought together and shown on a net basis at one place by major heads

Finance Bill

Finance Bill is a Money Bill which contains the government�s proposals for levy of new taxes, modification of the existing tax structure or continuance of the existing tax structure beyond the period approved by Parliament. It is submitted to Parliament along with the Budget for its approval Finance Bill. At the time of presentation of the Annual Financial Statement before Parliament, a Finance Bill is also presented, detailing the imposition, abolition, remission, alteration or regulation of taxes proposed in the Budget. It is accompanied by a Memorandum explaining the provisions included in it.

Fiscal Deficit

Fiscal Deficit is the di?erence between the revenue receipts plus certain non-debt capital receipts and the total expenditure including loans (net of repayments). This indicates the total borrowing requirements of the government from all sources.

Fiscal Deficit = Total expenditure�Revenue receipt� Recovery of loans � Other receipt

Monetized Deficit

Monetized Deficit indicates the level of support extended by the Reserve Bank of India to the government�s borrowing programme by way of printing of new money.

Non-Plan Expenditure

Non-plan expenditure includes both revenue and capital expenditure on interest payments, the entire defence expenditure (both revenue and capital expenditure), subsidies, postal deficit, police, pensions, economic services, loans to public enterprises and loans as well as grants to state governments, union territory governments and foreign governments.

Plan Expenditure

Plan expenditure includes both revenue and capital expenditure of the government on the Central Plan, Central assistance to state and union territory plans. It forms a sizeable proportion of the total expenditure of the Central government.

Public Account

Public account is an account in which money received through transactions not relating to the Consolidated Fund is kept. Besides the normal receipts and expenditure of the government relating to the Consolidated Fund, certain other transactions enter government accounts in respect of which the government acts more as a banker, for example, transactions relating to provident funds, small savings collections, other deposits, etc. Such money is kept in the Public Account and the connected disbursements are also made from it. Public Account funds do not belong to the government and have to be paid back sometime or the other to the persons and authorities who deposited them. Parliamentary authorization for payments from the Public Account is, therefore, not required. Moneys held by Government in Trust as in the case of Provident Funds, Small Savings collections, income of Government set apart for expenditure on specific objects like road development, primary education, Reserve/Special Funds, etc., are kept in the Public Account.

Written by princy

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