PUBLIC FINANCE AND BUDGET
1. BUDGET :
An annual financial statement of the estimated expenditure and income of government or an organization. In case of government budget, it contains the information on total funds raised by the government (through taxes or borrowing i.e. the fiscal deficit), and how that money is to be spent. When we refer to budget 2020-21, it means the detailed statement by the government regarding its estimated expenditure and receipts for the next financial year. That means an estimate of expenditure to be made and receipts to be obtained from 1st April 2020 to 31st March 2021. Thus, the general budget is actually a budget estimate for the coming financial year. Though the point of attraction in the budget is the programmes, schemes, expenditure and revenue for the coming financial year; the budget includes statements about two previous budgets. First, there is an actual budget statement of the previous year and a revised estimate of the current year. If you are going through the expenditure and revenue statement of the budget, you can see estimates for figures for these three years. So, there will be three years budget actually in one year’s budget.
2. REVENUE ACCOUNT/EXPENDITURE :
This consists of the revenue receipts of the government (tax revenues and other revenues) and the expenditure met from these revenues. Tax revenues comprise proceeds of taxes and other duties levied by the Union. Other revenues are receipts of the government mainly consisting of interest and dividend on investments made by the government, and fees and receipts for other services rendered by the government. Revenue expenditure is expenditure for the normal running of government departments and various services, interest charges on debt incurred by government, subsidies and so on. Broadly speaking, expenditure which does not result in the creation of assets is treated as revenue expenditure. All grants given to state governments and other parties are also treated as revenue expenditure even though some of the grants may be for creation of assets.
3. CAPITAL ACCOUNT/EXPENDITURE :
This consists of capital receipts and payments. Capital receipts are loans raised by the government from the public which are called market loans, borrowings by the government from the Reserve Bank and other parties through sale of treasury bills, loans received from foreign bodies and governments, and recoveries of loans granted by the central government to state and union territory governments and other parties. Capital payments consist of capital expenditure on acquisition of assets like land, buildings, machinery, and equipment, as also investments in shares, loans and advances granted by the central government to state and union territory governments, government companies, corporations and other parties.
4. DIRECT TAX :
Tax levied by government on the income and wealth received by the individuals and businesses, for example, income tax, corporation tax, wealth tax etc. the burden of direct tax is borne by the person on whom it is initially imposed. Direct tax can be progressive in nature in so far as the rate of taxation can vary directly with the income and the wealth of the tax payer.
5. INDIRECT TAX :
Tax imposed by government on goods and services, for example, goods and services tax, value added tax, sales tax, excise tax etc. The burden of indirect tax can be passed on to the consumer. It leads to increase in price of goods and services. Indirect taxes are regressive in nature as they impact everyone alike irrespective of the income levels of the consumer.
6. SURCHARGE :
In common usage, a surcharge refers to an additional payment or tax heaped upon an existing charge. A surcharge is an additional tax based on some characteristic of a taxpayer, such as her income or normal tax obligation. A surcharge is typically added to an existing tax and may not be included in the stated price of the good or service.
7. CESS :
Cess is an additional tax collected for the purpose of creating funds earmarked for a specific purpose. The funds so collected can be used for a definite purpose only, the one for which it was created. E.g. Swachh Bharat Cess, Krishi Kalyan Cess. The funds collected under these could only be used for Swachh Bharat related activities and for agricultural developments respectively.
8. FISCAL DEFICIT :
The difference between total revenue and total expenditure of the government is termed as fiscal deficit. It is an indication of the total borrowings needed by the government. While calculating the total revenue, borrowings are not included.
FD= Total Expenditure - (Revenue Receipts+ Non-Debt Creating Capital Receipts)
Non-Debt Creating Receipts are those receipts which are not classified as borrowings and do
not give rise to debt. Examples Disinvestment proceeds from Public Sector Undertakings and recovery of loans by the central government. If a large part of FD is due to revenue deficit, it implies the government is borrowing to finance its consumption requirement. This is a dangerous situation, and soon the government will go bankrupt.
9. PRIMARY DEFICIT :
Primary deficit is one of the parts of fiscal deficit. While fiscal deficit is the difference between total revenue and expenditure, primary deficit can be arrived by deducting interest payment from fiscal deficit. Interest payment is the payment that a government makes on its borrowings to the creditors.
Primary Deficit = Fiscal Deficit – Interest Payments
10. REVENUE DEFICIT :
Revenue Deficit is the difference between the revenue receipt on tax and non-tax sides and the revenue expenditure. Revenue expenditure is conventionally considered synonymous with consumption and non-development in general. When revenue deficit is Zero, we can fund for consumption from government’s own resource and not borrowings.
11. EFFECTIVE REVENUE DEFICIT :
Effective Revenue Deficit is defined as the difference between “the revenue deficit and the grants for creation of capital assets”. Grants for creation of capital assets are defined as the grants given by the Central Government to the State Government etc. for creation of capital assets.
12. DEFICIT FINANCING :
Acquiring resources to fill the gap between government expenditures and revenues. These resources may be obtained through borrowings from the public or printing of new currency by the central bank.
13. CROWDING OUT :
Excessive government borrowing can lean to shrinkage of the liquidity in the market; forces the interest rates to go up; private investment is crowded out. This means less money is available for private sector investment purposes. In this case investment suffers and growth decelerates.
14. DEBT TRAP :
A debt trap is a situation in which a borrower is led into a cycle of re-borrowing, or rolling over, their loan payments because they are unable to afford the scheduled payments on the principal of a loan. These traps are usually caused by high-interest rates and short terms. Debt traps are circumstances in which it is difficult or impossible for a borrower to pay back money that they have borrowed. A debt trap occurs when a borrower is unable to make payments on the loan principal; instead, they can only afford to make payments on the interest. Because making payments on the interest does not lead to a reduction in the principal, the borrower never gets any closer to paying off the loan itself. It’s pretty similar to a hamster on its wheel: running and running but staying in the same place.
15. CAPITAL GAIN :
Capital gain is an increase in the value of a capital asset that gives it a higher worth than the purchase price. Gains are generally not taxable (and losses are not deducted) until the item is sold. A capital asset can come in a variety of forms:
a). Inherited property
b). Property someone owns for personal use or as an investment
c). Investment property (stocks and bonds)
d). Collectibles such as artwork and coins
When you sell a capital asset, the capital gain or loss is “realized” meaning that the difference between the basis (what you paid for it) and the amount you receive when you sell the asset is taxed or deducted. Capital gains are classified by how long you hold the property. Capital gains can come in the form of short-term (have the asset for one year or less) or long-term (have the asset for more than a year or inherit the asset). Both types of capital gains are subject to capital gain tax.
16. FISCAL POLICY :
Policy of the government regarding spending, taxation and borrowing. Its objective includes achieving economic growth, price stability, employment generation, distributive justice etc. Example of fiscal policy is levying tax on public or government spending on public works. While the fiscal policy deals with the taxation and expenditure decisions of the government, monetary policy deals with the supply of money in the economy and the rate of interest.
17. BENAMI TRANSACTIONS :
Benami literally means ‘without a name’. Therefore, an asset without a legal owner or a fictitious owner is called a benami. It can be a property of any kind, whether movable or immovable, acquired by way of benami transaction. When a person buys a property with his own money but in the name of another person without any intention to benefit such other person, the transaction is called benami and the property is called a benami property.
18. CONSUMPTION TAX :
A consumption tax is a broad category of tax that is levied on the consumption value of goods and services. Examples of consumption taxes include retail sales taxes, excise taxes, value added taxes, GST and import duties. Consumption taxes are paid for by consumers rather than businesses, even though they may originally be paid by a business that passes the tax along to the consumer in the selling price. Consumption taxes are generally not collected by the government directly from consumers. Rather, they are collected by vendors at the retail level, who then pay the national or state taxing authority. Consumption tax can also refer to a taxing system as a whole in which people are taxed based on how much they consume rather than how much they add to the economy (income tax).
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