Public revenue is the money that a government earns, which is essential for funding various developmental projects like building roads, railways, schools, and hospitals. A significant amount of money is also needed to keep the government's administrative structure running. Therefore, it is crucial for the government to plan its revenue carefully to promote the economic growth of the country.
Tax Revenue
Non-Tax Revenue
A tax is a mandatory payment that the government imposes on individuals or businesses to cover the costs of providing common benefits to the public.
Characteristics of Tax
Commercial Revenues
Commercial revenues refer to the income generated by the government through public enterprises by selling their goods and services.
Differences between Tax and Price:
Taxes play a crucial role in generating revenue for the government to finance developmental programs. Tax relief provided to entrepreneurs helps them manage the production of goods, and such tax policies can lead to the expansion of certain industries and trade. Custom duties are also an important tool for reducing the import of goods that are available domestically, thereby promoting economic growth.
Furthermore, taxation policy is instrumental in regulating the production and consumption of goods and services within a country. For instance, heavy taxes can be imposed on nonessential goods like wines and cigarettes, which helps in reducing their production and consumption. This policy also aids in allocating scarce resources to more desirable lines of production. Differential commodity taxation is therefore an effective means of regulating the production and consumption patterns of goods in the economy.
Differences between direct taxes and indirect taxes
Direct Taxes:
Indirect Taxes:
Merits of Direct Tax
Demerits of Direct Tax
Merits of Indirect Tax
Demerits of Indirect Tax
When the government imposes a tax, it creates a burden on the taxpayer. However, the person who bears the burden of the tax may not always be the same as the person from whom the government collects it. Impact of Taxation Incidence of Taxation Example: Income Tax Example: Sales Tax
Progressive Tax: This type of tax means that as a person's income increases, the percentage of income paid as tax also increases.
For example:
Proportional Tax: In a proportional tax system, the tax rate remains the same no matter how much the income increases. Everyone pays the same percentage of their income as tax.
For example:
Regressive Tax: In a regressive tax system, the tax rate decreases as income increases. Although the total amount of tax increases with higher income, the average tax rate decreases.
For example:
Degressive Tax: This system combines both progressive and proportional taxes. The tax rate increases up to a certain level, after which a uniform rate is charged. As income increases, the total tax amount may decrease.
For example:
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1. What are the key characteristics of a tax? | ![]() |
2. What are the merits of direct taxes? | ![]() |
3. What are the demerits of direct taxes? | ![]() |
4. What are the merits of indirect taxes? | ![]() |
5. What are the demerits of indirect taxes? | ![]() |