A government budget is a financial statement of expected receipts and payments of government during a particular period of time, such as a financial year 1stAprilXX–31stMarchXX.
Reallocation of resources: Through the budgetary policy, the government can reallocate resources so that social and economic objectives can be met.
i. A tax is a legally compulsory payment that is imposed by the government on households and producers. The government impose taxes on socially unsafe goods like alcohol and tobacco. Thereby resources will be shifted to the production of socially essential goods.
ii. Subsidies do not reduce the liability of the government as well as does not add to the assets of the government. The government also provides subsidies for necessary goods like wheat, rice and sugar. Thereby the resources are shifted from the production of goods for the rich to the production of goods for the poor.
A revenue receipt does not reduce the liability of the government and it does not add to assets of the government. Revenue receipts are classified into
i. Tax receipts: A tax receipt is the most important source of income for the government. A tax is a compulsory payment that is imposed on individuals or companies by the government to meet its expenditures. There various types of taxes like progressive and regressive taxes, value added and specific taxes, and direct and indirect taxes.
a) Direct taxes are imposed on the income of a person based on the principle of ability to pay. The income tax burden is equitably distributed on different people and institutions. Thereby the tax burden falls more on the rich than on the poor. On the other hand, indirect taxes are imposed on an individual but are paid by another person either partly or wholly. Therefore, the impact and incidence of taxes are on different persons. Union excise duties and customs duties are examples of indirect taxes. Here, the producer bears the impact and the incidence of tax on the consumer. Union excise duties, that is, taxes on the production of various goods, except on alcoholic and other drugs, which are sold within the country and custom duties which are imposed by the Central Government either on imported or exported items.
b) A tax is progressive when the rate of tax increases with an increase in the taxpayer’s income. Under this system, the tax liability increases not only in absolute terms, but the proportion of income tax also increases. The rich pay a higher average income tax than the poor. On the other hand, in regressive tax, the average tax rate decreases with an increase in the income of an individual. The absolute amount of tax collection increases with an increase in the income.
c)Value added taxis imposed on value added at different phases of production. On the other hand, specific taxis levied on specific units, size and weight of a good.
ii. Non-tax receipts: Receipts to the government from sources other than taxes is known as non-tax receipts. It is collected to provide administrative services to the people.
a) A fee is imposed for a specific reason. For instance, the school management imposes a fee for the admission of a student to the school.
b) When an individual fail to appear in the court, the penalty imposed by the court is called forfeiture.
c)Under the right of escheat, when a person dies without making a will or without having any legal heirs, the bank balance or the property of the person will be acquired by the government.
d)Special assessment is a payment made by the owner of the property where the value of that property increases because of development activities of the government.
e) People offer donations to the government at times of natural calamities such as flood and earthquake. By budgetary policy, the government stabilises prices and employment to ensure growth in the economy. This enables the control of inflationary situations and helps tackle other imbalances in the business cycle.
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