Day 28 – Q 2. What are the three primary sources of government revenue. In each of these areas, suggest various measures to increase the corpus.
2. What are the three primary sources of government revenue. In each of these areas, suggest various measures to increase the corpus.
सरकारी राजस्व के तीन प्राथमिक स्रोत क्या हैं। इन क्षेत्रों में से प्रत्येक में, कॉर्पस को बढ़ाने के लिए विभिन्न उपायों का सुझाव दें।
For developmental and welfare works and day to day functioning, Government requires financial resources. These resources are collected primarily from three sources viz. Direct Tax revenue, Indirect Tax revenue and Non tax revenue.
Direct Tax revenue:
A direct tax is paid directly by an individual or organization to the imposing entity. A taxpayer, for example, pays direct taxes to the government for different purposes, including property tax, corporate tax, income tax or taxes on assets, etc.
Indirect Tax revenue:
An indirect tax is collected by one entity in the supply chain (usually a producer or retailer) and paid to the government, but it is passed on to the consumer as part of the purchase price of a good or service. The consumer is ultimately paying the tax by paying more for the product. Best example of this is Goods and Services Tax.
Measures to Increase the Revenue Corpus
Revenue can be increased by implementing the recommendations of the Report of Tax Administration Reforms Commission (TARC) or Dr. Parthsarathi Shome Commission.
Some other measures; For Direct Tax revenue:
- A direct tax code on the lines of GST to increase compliance base.
- Making taxing more progressive than regressive.
- Use of Information and Communication technologies.
- Stricter implementation of laws dealing with tax evasion and avoidance such as IT act, GAAR etc.
- Bringing prosperous farmers under taxation
- Strengthening infrastructural and human capacities of the states and local governments as well, to improve tax collection.
- Proper implementation of international agreement and mechanisms like DTAA, OECD’s BEPS etc.
For Indirect Tax revenue:
- One of the objectives of GST was enhanced revenue collection, but still there are challenges in its implementation and compliance. Removal of these hurdles will help to achieve targeted revenue collection.
- Devolution of powers to local governments for imposing taxes.
- Petrol and diesel should be considered to bring in the ambit of GST.
- Rationalisation of multiple tax rates within GST
Non tax revenue:
Non-tax revenue comes from the money earned by the government other than taxes, such as profits and dividends of Public Sector Undertakings (PSU), revenue collected from sale of spectrum, royalty on inland petroleum, fees collected from national highways, interests and others.
Such revenue can be increased by:
- Reviving of ailing PSUs through more autonomy, capitalisation and increasing competition within and with private sector.
- Public-private partnerships (PPPs) will enhance the efficiency of public sector units.
- Improving business atmosphere in India (ease of doing business) which will result in higher credit rating and higher confidence in investment in government bonds etc.
- For government, the need to raise revenues with a tightening fiscal policy, that is increasing taxes, is counterproductive, while cutting expenditure will slow down growth and investments.
- A structured, long-term plan will not only outline the course of action but also help provide predictability to the earnings of the government.
- Government has done well to implement tax-side reforms in the form of GST that will enhance the tax revenues in the long term. A similar reforms-oriented approach towards indirect taxes and non-tax revenues can help it do a better job at balancing the fiscal deficit and public expenditure, ensuring that the growth momentum is not lost.
Best Answer: Disha