Answer the following
1) State the types and importance of Government budget.
Ans: There are three main types of the government budgets.
Balanced budget- It means the total budgeted expenditure is equal to the total budgeted receipts. In other words, a balanced budget implies a situation where the total budget receipts of the government equals the total budget expenditure of the government. That is,
Balanced budget = Government expenditure = Government revenue
Surplus budget- It refers to the excess of the total budgeted receipts over the total budgeted expenditure. In other words, budget surplus implies a situation where the total budget receipts of the government are more than the total budget expenditure of the government. That is,
Surplus budget = Government expenditure < Government revenue
Deficit budget- It refers to the excess of the total budgeted expenditure over the total budgeted receipts. In other words, budget deficit implies a situation where the total budget receipts of the government fall short of the total budget expenditure of the government. That is,
Deficit budget = Government expenditure > Government revenue
Following are the Importance of Budget
Union Budget is important because it affects people and the economy in general in a number of ways. Taxes are the most interesting part of any budget. Taxes determine the fate of businesses and individuals. The level of disposable income of the taxpayers depends on the tax rates presented in the budget.
Government expenditure on various heads such as defense, administration, infrastructure, education, and health care, etc. affects the lives of the citizens and overall economy. Also, the budget is important because Governments use it as a medium for implementing economic policies in the country. Budgetary actions of the Government affect production, size, and distribution of income and utilization of human and material resources of the country. The scope and importance of public finance in a modern economy have undergone an immense change since the last 100 years.
2) Explain the principles of taxation.
Ans: Following are the principles of taxation:
Equity or Equality: Every person will pay the taxes to the government in proportion to his ‘ability to pay’. It means rich people should pay more tax compared to the poor.
Certainty: The taxpayer should know in advance how much tax he has to pay, at what time he has to pay the tax, and in what form the tax is to be paid to the government.
Convenience: Every tax should be levied in such a manner and at such a time that it becomes convenient to the taxpayer.
Economy: The cost of tax collection should be the minimum. If a major portion of the tax proceeds is spent on the tax collection itself, then such a tax cannot be considered as a good tax
3) Explain non-tax sources of revenue of the Government.
Ans: Non-tax revenue: Public revenue received by the government administration, public enterprises, gifts, and grants, etc. are called non-tax revenue.
Brief information about non-tax revenue sources are as follows:
Fees: A tax is paid compulsorily without any return service whereas, the fee is paid in return for certain specific services rendered by the government. For example- education fees, registration fees, etc.
Prices of public goods and services: Modern governments sell various types of commodities and services to the citizens. A price is a payment made by the citizens to the government for the goods and services sold to them. For example- railway fares, postal charges, etc.
Special Assessment: The payment made by the citizens of a particular locality in exchange for certain special facilities given to them by the authorities is known as ‘special assessment.’ For example- local bodies can levy a special tax on the residents of a particular area where extra/special facilities of roads, energy, water supply, etc. are provided.
Fines and Penalties: The government imposes fines and penalties on those who violate the laws of the country. The objective of the imposition of fines and penalties is not to earn income, but to discourage the citizens from violating the laws framed by the Government. For example, fines for violating traffic rules. However, the income from this source is small.
Gifts, Grants, and Donations: The government may also earn some income in the form of gifts by the citizens and others. The government may also receive grants from foreign governments and institutions for general and specific purposes. Foreign aid has become an important source of development finance for a developing country like India. However, this source of revenue is uncertain in nature.
Special levies: This is levied on those commodities, the consumption of which is harmful to the health and well-being of the citizens. Like fines and penalties, the objective is not to earn income, but to discourage the consumption of harmful commodities by the citizens. For example- duties levied on wine, opium, and other intoxicants.
Borrowings: The government can borrow from the people in the form of deposits, bonds, etc. It also gets loans from foreign governments and organizations such as IMF, World Bank, etc. Loans are becoming a more and more popular source of revenue for governments in the modern times.