Government Budget: Receipts & Expenditure

I. Government Receipts

Government receipts show the various sources from which the government raises financial resources.

Types of Government Receipts

1. Revenue Receipts
2. Capital Receipts

1. Revenue Receipts

Definition

Revenue receipts are current incomes of the government which:

• Do not create any liability, and
• Do not lead to reduction in government assets

Examples

• Taxes
• Profits of public enterprises
• Fees, fines, grants, interest receipts

Classification of Revenue Receipts

A. Tax Revenue

Tax is a compulsory legal payment made to the government without direct quid pro quo.

Types of Taxes

(i) Direct Taxes

• Liability and burden fall on the same person
• Burden cannot be shifted

Examples:

• Income Tax
• Corporate Tax
• Wealth Tax
• Gift Tax
• Expenditure Tax

Keyword: Non-transferable burden

(ii) Indirect Taxes

• Liability and burden fall on different persons
• Burden can be shifted

Examples:

• Sales Tax
• Excise Duty
• Customs Duty
• Service Tax
• Entertainment Tax

Keyword: Transferable burden

B. Non-Tax Revenue

Income earned by the government from sources other than taxes.

Major Sources of Non-Tax Revenue

(i) Commercial Revenue

• Prices paid for goods & services provided by the government

Examples:

• Railways
• Electricity
• Postal services
• Toll charges

(ii) Administrative Revenue

Includes:

1. Fees
   • Passport fees
   • Court fees
   • Hospital & education fees
2. Fines & Penalties
   • Charged on law violators
3. Licence & Permit Fees
4. Escheat
   • Property with no legal heir goes to the government
5. Interest Receipts
   • On loans given by the government
6. Profits of Public Sector Undertakings (PSUs)

2. Capital Receipts

Definition

Capital receipts are receipts which:

• Create a liability, or
• Reduce government assets

Major Sources of Capital Receipts

A. Borrowings

1. Domestic Borrowings

• Government securities
• Treasury Bills
• Small Savings Schemes
• Public Provident Fund (PPF)

2. External Borrowings

• IMF
• World Bank
• Foreign governments

Keyword: Debt-creating receipts

B. Recovery of Loans

• Loans recovered from State & Local Governments
• Reduces financial assets

C. Disinvestment

• Sale of government shares in PSUs
• Introduced after 1991 economic reforms
• Part of privatisation policy

II. Government Expenditure

Government spending is classified into:

1. Capital Expenditure
2. Revenue Expenditure

1. Capital Expenditure

Definition

Expenditure which:

• Creates assets, or
• Reduces liabilities

Examples

• Construction of roads, bridges, railways
• Schools and hospitals
• Repayment of loans

Keyword: Asset-creating expenditure

2. Revenue Expenditure

Definition

Expenditure which:

• Neither creates assets
• Nor reduces liabilities

Examples

• Salaries of government employees
• Maintenance of public property
• Subsidies
• Free education and health services

Keyword: Consumption expenditure

Comparison Table