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Unformatted text preview: MBA E ducation & C areers termin
Budget terminology made easy! T he term ‘Budget’ refers to the financial
statement (or documents) placed by the
government before the legislature every
year on or after a specific date, setting forth the
anticipated expenditure of the government during
the next financial year (called the budget year)
and the receipts for the same period: (a) under
the existing laws in force, and (b) as a result of
the taxation proposals, if any contemplated by
the government. More often than not, the budget
is the manifestation of the political philosophy
of the party in power.
The primary objective of the budget is to reveal
comprehensive information in order to present a
complete picture of the financial position of the
government and thereby enable the legislature
to measure adequately the impact of such financial
programmes on the country’s economy. The
estimates included in the budget are simply
estimates; the actuals may not conform to the
original estimates. The budget must, however,
estimate revenues and expenditures as accurately
as possible. Accuracy becomes essential if
equilibrium established in the estimates is to be
maintained to the end and realised in actuals.
The budget comprises data for three years:
(a) actual figures for the preceding year;
(b) budget estimates for the current year;
(c) revised estimates for the current year, and
(d) budget estimates for the following year.
For example, the Union Budget for 2007–08
(a) actuals for 2005–06;
(b) budget estimates for 2006–07;
April 2007 24 (c) revised estimates for 2006–07, and
(d) budget estimates for 2007–08.
CLASSIFICATION OF TAXES
(a) Direct and Indirect Taxes: Direct taxes are
defined as those taxes levied immediately on the
property and incomes of persons and which are
paid directly by the consumers to the state. Thus,
income and wealth taxes, estate duties and toll
taxes paid directly to the state form the group of
All other taxes would be grouped as indirect, i.e.
those whose burden can be shifted, e.g., sales
tax and excise duties. These are imposed upon
and collected from producers and sellers. But
producers and sellers can shift the burden of
these taxes on to the consumers. However, when
these taxes are passed onto the consumers, they
indirectly tax the income of the consumers.
(b) Proportional, Progressive, and Regressive
Taxation: A tax may be proportional, progressive
or regressive according to the relationship
between its rate structure and the income, wealth
and economic power of the tax-payer.
A tax is proportional, progressive or regressive
according to the percentage of the tax to the tax
♦ Proportional Taxation: If the tax is the ‘same percentage’ on all incomes, large or small, it
is called proportional taxation.
♦ Progressive Taxation: In this system, the rate of tax goes on increasing with every
increase in income. In other words, lower
income is taxed at a lower percentage,
whereas higher income is taxed at a higher
percentage. MBA E ducation & C areers E C O F U N D A S F O R Y O U : BUDGET TERMINOLOGY MADE EASY
Why the Budget is tabled usually on the last day of February?
The finance minister is required to submit the Budget to Parliament usually
on the last day of February so that the Lok Sabha has one month to review
and modify the Budget proposals.
If by April 1, the beginning of the country’s fiscal year, the parliamentary
discussion on the Budget has been completed, the Budget as proposed by
the finance minister comes into effect.
♦ Regressive Taxation : If the rate of tax decreases with an increase in income, it is
called regressive taxation. RECEIPTS
When you scan the budget document, you come
across terms like Revenue Receipts and Capital
Receipts. What do these terms mean?
(a) Revenue Receipts: Revenue receipts may be
classified into two major components: Tax
Revenue and Non-Tax Revenue.
♦ Tax Revenue: Tax revenue is one of the most important resources of public revenue. It
refers to funds raised through taxation and
implicit in it is an element of compulsion. It is
compulsory in the sense that once the taxes
are imposed, the person liable to pay them
has to do so. Refusal to do so is treated as a
crime for which the law prescribes severe
punishment. Tax revenue comes regularly and
is always certain to come because taxes are
paid periodically. Some of the important taxes
are income tax, excise duty, customs duty,
sales tax, estate duty, wealth tax, and gift tax.
In addition to these, the term tax revenue also
includes special assessment and fees.
♦ Non-Tax Revenue: Non-tax revenue is raised by the government in the form of the prices paid for the use of specific services and goods
offered by it. It is purely voluntary in the sense
that the individual concerned has to pay the
price for a particular good or service in case
he purchases it, otherwise not. The revenue
under this head comes irregularly and is
Non-Tax revenue includes:
(1) revenue from state monopolies and state
undertakings (like railways, electricity,
telecom, forests, and irrigation);
(2) revenue from social services (like education,
(3) revenue from public property (like lease / rent
(4) charges for specific benefits or improvements
i.e. development charges, and
(5) voluntary gifts received by state authorities
such as donations to hospitals, charitable
(b) Capital Receipts: These include loans raised
by the Government of India from the general
public, government’s borrowings from the RBI
as well as other similar bodies (through sale of
treasury bonds), external loans (like from the
IMF), recoveries of loans granted to states / UTs,
savings invested in PPF, etc.
April 2007 25 MBA E ducation & C areers E C O F U N D A S F O R Y O U : BUDGET TERMINOLOGY MADE EASY
Expenditure may be classified into (a) Revenue
Expenditure and Capital Expenditure,
(b) Plan and Non-Plan Expenditure, and
(c) Development and Non-Development
(a) Revenue Expenditure and Capital Expenditure:
All expenditure incurred in the normal day-to-day
running of government is termed Revenue
Expenditure. This includes expenditure incurred
on provision of services, salaries, subsidies,
interest payments made to service debts, etc.
Capital Expenditure is incurred in the creation of
assets like land, plant and machinery, and
investments in securities. Also loans and
advances granted to state governments and PSUs
by the Centre are treated as Capital Expenditure.
(b) Plan and Non-Plan Expenditure: Any public
expenditure incurred on current development and
investment outlays that arise due to plan
proposals (five year plan proposals) is termed
Plan Expenditure. DEFICITS
In a budget statement, there is a mention of four
types of deficits: (a) revenue, (b) budget,
(c) fiscal, and (d) primary. (a) Revenue Deficit: It refers to excess of revenue
expenditure over revenue receipts. In fact, it
reflects one crucial fact: what is the government
borrowing for? As an individual if you are
borrowing to pay the house rent, then you are in
a situation of revenue deficit, i.e. while you are
borrowing and spending, you are not creating
any durable asset. This implies that there will be
a repayment obligation (sometime in the future)
and at the same time there is no asset creation via
(b) Budget Deficit: It refers to the excess of total
expenditure over total receipts (here, total
receipts include current revenue and net internal
and external capital receipts of the government).
(c) Fiscal Deficit: The difference between total
expenditure (revenue, capital, and loans net of
repayment) on one hand, and on the other hand,
revenue receipts plus all those capital receipts
which are not in the form of borrowings but which
in the end accrue to the government.
(d) Primary Deficit: This simply refers to fiscal
deficits minus interest payments. In other words,
it points to how much the government is
borrowing to pay for expenses other than interest
payments. Also, it underscores another key fact:
how much is the government adding to future
burdens (in terms of repayment) on the basis of
past and present policy. M E & C Who presented India’s first Budget?
Mr. R. K. Shanmukhan Chetty, who served as the finance minister in Mr. Jawaharlal Nehru’s
Cabinet between 1947 and 1949, presented the first Budget of independent India
on November 26, 1947.
Actually, it was a review of the economy and no new taxes were proposed as the Budget
day for 1948-49 was just 95 days away. Mr. Chetty resigned in 1949 over
differences with Mr. Nehru.
April 2007 26 ...
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This note was uploaded on 04/11/2010 for the course ECONOMICS HU-203 taught by Professor Hitashi during the Spring '10 term at Punjab Engineering College.
- Spring '10