Government Budgeting and Taxation
Every country needs money to run. The government spends money on building roads, providing education, maintaining the army, giving healthcare, and many other services. To manage all this, the government makes a budget.
A budget is a financial statement showing how much money the government expects to earn (revenue) and how much it plans to spend (expenditure) during a financial year.
To earn money, the government mainly depends on taxes (like income tax, GST, excise duty, etc.) and non-tax revenue (like fees, interest, dividends). At the same time, it spends on schemes, salaries, defence, subsidies, and development projects.
Thus, budgeting and taxation are the backbone of economic governance. They help in running the administration, supporting development, and ensuring social welfare.
What is Government Budgeting?
Government budgeting is the process of:
- Estimating how much money will come in (revenue).
- Deciding how much will be spent and on what activities (expenditure).
- Presenting it as a statement in Parliament/Legislature.
In India, the Union Budget is presented by the Finance Minister every year in Parliament. It shows both receipts and expenditures of the central government.
Objectives of Government Budgeting
The budget is not just about money. It is a tool to shape the economy and society. The main objectives are:
- Resource Mobilisation: Collect money through taxes and other means.
- Reducing Inequality: Spend more on poor sections through welfare schemes.
- Economic Growth: Invest in infrastructure, industry, and technology.
- Employment Generation: Support programs that create jobs.
- Price Stability: Control inflation through subsidies and taxation.
- Balanced Regional Development: Allocate funds for backward areas.
- Social Welfare: Spend on education, health, housing, and food security.
Components of the Budget
The Indian government budget has two main parts:
1. Revenue Budget
- It includes all revenue receipts (money earned) and revenue expenditure (money spent).
- Revenue Receipts: These are further divided into:
- Tax Revenue: Income tax, corporate tax, GST, customs duty, etc.
- Non-Tax Revenue: Fees, interest, dividends from public sector units, etc.
- Revenue Expenditure: Spending on salaries, pensions, subsidies, interest payments, defence services, etc.
2. Capital Budget
- It includes capital receipts (borrowings, loans) and capital expenditure (asset creation).
- Capital Receipts: Loans from public, market borrowings, foreign aid, disinvestment, etc.
- Capital Expenditure: Building roads, railways, hospitals, dams, defence equipment, etc.
Types of Budget
There are different ways to classify a budget:
| Type | Meaning | Example |
|---|---|---|
| Balanced Budget | Revenue = Expenditure | Rare in modern times |
| Surplus Budget | Revenue > Expenditure | When govt earns more than it spends |
| Deficit Budget | Revenue < Expenditure | Common in developing nations like India |
| Zero-Based Budgeting | Every expense must be justified from zero | Adopted in India in 1987 |
| Performance Budgeting | Linking expenditure to results achieved | Used in welfare schemes |
Taxation in India
Since taxes are the main source of government revenue, understanding them is very important.
What is Tax?
A tax is a compulsory payment made by citizens and companies to the government, without expecting direct benefit in return.
Types of Taxes
Broadly, taxes are of two types:
- Direct Taxes
- Paid directly to the government.
- Example: Income tax, Corporate tax, Wealth tax (abolished now).
- Progressive in nature (rich pay more).
- Indirect Taxes
- Collected by intermediaries (shops, companies) but paid by consumers.
- Example: Goods and Services Tax (GST), Customs duty, Excise duty.
- Regressive in nature (affects rich and poor equally).
| Direct Tax | Indirect Tax |
|---|---|
| Collected directly from income/wealth | Collected when goods/services are bought |
| Burden cannot be shifted | Burden can be shifted to consumers |
| Progressive (depends on income level) | Regressive (same for all) |
| Example: Income Tax | Example: GST |
Importance of Taxation
- Provides revenue to the government.
- Reduces income inequality (through progressive taxes).
- Controls inflation (by increasing taxes) or boosts growth (by reducing taxes).
- Encourages/discourages certain activities (higher tax on cigarettes to discourage smoking).
- Strengthens the nation by funding defence and infrastructure.
Deficits in Government Budget
When expenditure is more than revenue, it creates deficits.
Types of deficits:
| Deficit | Meaning |
|---|---|
| Revenue Deficit | Revenue expenditure > Revenue receipts |
| Fiscal Deficit | Total expenditure > Total receipts (excluding borrowings) |
| Primary Deficit | Fiscal deficit – Interest payments |
Trends in India’s Budget (Recent Data)
| Year | Total Expenditure | Revenue Receipts | Fiscal Deficit (% of GDP) |
|---|---|---|---|
| 2018-19 | ₹24.4 lakh crore | ₹17.3 lakh crore | 3.4% |
| 2019-20 | ₹26.9 lakh crore | ₹19.3 lakh crore | 4.6% |
| 2020-21 (COVID) | ₹34.5 lakh crore | ₹16.8 lakh crore | 9.5% |
| 2021-22 | ₹37.9 lakh crore | ₹20.3 lakh crore | 6.7% |
| 2022-23 | ₹41.9 lakh crore | ₹24.3 lakh crore | 6.4% |
| 2023-24 (BE) | ₹45 lakh crore | ₹27.2 lakh crore | 5.9% |
(BE = Budget Estimate) (approx values)
Challenges in Government Budgeting and Taxation
- High Fiscal Deficit – Borrowing is increasing.
- Tax Evasion – Many avoid paying taxes.
- Low Tax Base – Only ~6 crore Indians pay income tax.
- Subsidy Burden – Huge spending on food, fertilizer, fuel subsidies.
- Debt Trap – Rising borrowings and interest payments.
- Inequality – Rich-poor gap still high despite progressive taxation.
Government Reforms in Budgeting and Taxation
- Goods and Services Tax (GST), 2017 – Unified indirect tax system.
- Direct Tax Code (Proposed) – To simplify direct taxes.
- Digital Tax Filing – Faster and transparent filing.
- Disinvestment Policy – Selling PSUs to raise capital.
- Fiscal Responsibility and Budget Management (FRBM) Act – To control fiscal deficit.
Way Forward
- Widen Tax Base: More people should pay taxes.
- Reduce Tax Evasion: Use technology and strict laws.
- Rational Subsidies: Provide subsidies only to the needy.
- Focus on Productive Expenditure: Spend more on health, education, infrastructure.
- Balanced Fiscal Policy: Reduce borrowing and control inflation.
Conclusion
Government budgeting and taxation are essential for the progress of any country. A well-planned budget ensures proper use of resources, social justice, and economic growth. Taxes provide the fuel for development, while budgeting ensures that this fuel is used wisely.
For India, effective budgeting and a fair taxation system are key to achieving the dream of becoming a developed and inclusive economy.
