Trends and Pattern of Non-tax Revenue in India
Revenue is the source of income for the government to meet its expenditure and develop the economy. The government earn revenue from different sources like tax revenue or non-tax revenue. In India, tax revenue is the major source of earning for the government accompanied by a considerable amount of non- tax revenue. More than half of the revenue constitutes tax revenue with the proportion of non-tax revenue lying between 20 per cent to 30 per cent and the trends of non-tax revenue in India is increasing in absolute figure.
The situation of the post-reform period is quite different from the situation of the pre-reform period but there is no considerable variation in the proportion of the tax revenue and non-tax revenue. The absolute amount of the non-tax revenue collected has been increasing due to globalisation, privatisation and liberalisation. Among the various sources of the non-tax revenue the share of interest receipts, dividend and profit receipts are highest. The non-tax revenue to gross domestic product ratio has shown an increasing trend from 1991-92 with the value of 0.2369 per cent and started falling from 2005-06 at 0.2080 per cent and further falls to 0.11 per cent in 2017-18. The proportion of tax revenue to GDP was 0.74 per cent in 1991-92 that falls to 0.72 per cent during 2017-18.
There is a fixed division mechanism of tax revenue and non-tax revenue mentioned under the Constitution of India. There are rules for the collection and ownership of the non-tax revenue. For example: if electricity is supplied by the state government then the service charge for the service rendered is also collected and owned by the state government. Similarly, the administrative charges for issue of passport and visa are collected by the union government as this service is provided by the union government.
Non-tax revenue is the recurring income earned by the government from the non-tax sources. It is less constrained than tax revenue and can be earned only in lieu of services rendered. It is not a compulsory payment like tax revenue. It has some merits as well as demerits as it affects the economic, social and political affairs.
What is non-tax revenue?
The non-tax revenue is the revenue earned by the government other than the sources of tax revenue. It is the recurring income earned by the government from non-tax sources. This is the return earned on the behalf of the services provided by the government like the economic services such as power and railways; social services such as education and health; fiscal services such as currency and coin mints; and administrative services such as the issue of passport and commercial licences. Hence, it is usually considered as the by-products of administrative, economic, social, fiscal and other services of the government. It is not a compulsory payment like tax whereas it is payable only when the payee is getting something in return. It is the revenue charged by the government as a price of the services rendered.
Importance of non-tax revenue
- It generates additional income to finance more expenditure.
- It is the major source to finance fiscal deficits.
- It is important to finance the repair, maintenance and operations (MRO) of existing capital assets that result in positive externality and revenue collection.
- The non-tax revenue will fund the non-plan and plan revenue expenditure and hence increase the efficiency of the economy.
- The fines and other charges generate social welfare in the form of better health and hygienic standards, better standard of living, inculcation of discipline in nature, and also help to maintain law and order.
Difference between tax revenue and non-tax revenue
The tax revenue is the compulsory payment made to the government by the public. It is charged on the income earned by the individual or entity on the value of the transaction of goods and services.
The non-tax revenue is charged against the services provided by the government. It becomes payable only when services offered by the government are availed.
Some of the major differences between tax revenue and non-tax revenue are following:
Table 1. Difference between non tax revenue and tax revenue
|Non-tax revenue||Tax revenue|
|i.||It is the income earned by the government against the non-tax sources.||It is the revenue earned by the government in lieu of imposed taxes.|
|ii.||It is charged against the services that are provided by the government.||It is charged on the income earned by the individuals or business organisations (direct tax) and on the purchase of goods and services (indirect tax).|
|iii.||Its share in total tax revenue is small.||It constitutes the major part of the government revenue.|
|iv.||It is payable only when services offered by the government are availed by the individual or organisation.||It is a compulsory payment against the income earned and goods and services consumed.|
Sources of non-tax revenue
The non-tax revenue receipts include all money earned by the government from different sources except the sources of tax revenue. In general, the sources of non-tax revenue are classified under six heads:
- Administrative services
- Economic services
- Property income
- Transfer incomes
i. Administrative services: The services like issue of visa, passport, a different type of licences, birth certificate, death certificate, services provided at the government hospital and schools fall in the category of administrative services. Government charge fee for these services and add to its non-revenue tax.
These services are further categorised under three heads: (a) General services, (b) Economic services and (c) Social services.
The general category include the fee collection in lieu of services provided by the police to other governments, private companies and autonomous bodies, fee collected by public service commission etc.
The economic services include the development receipts. The fee and charges collected from irrigation, mining and quarrying, forestry, roads and bridges and area development etc.
The social services covers the fee collected from government schools, colleges and government hospitals, entry fee at amusement places like museums, botanical gardens, government organised fairs and rents from houses provided by the government etc.
The government also earns from fiscal services. It includes the earning from currency or bank note presses, security paper mills and presses, coin mints, etc
ii. Economic services: The fee and charges collected by the government for rendering services like water supply, gas supply, electricity and transport services, maintenance of cleanliness and hygiene like the collection of garbage from households, maintenance of drainage and sewage etc come under the category of economic services.
iii. Income from the property: The government earn rent and royalty against the property hold by it either fully or partially. If the government contributes in any commercial enterprises then it has the right to collect a profit for the investment. The rentals earned from government buildings, tolls on use of roads and bridges, royalty earned from natural resources comes under this category. The government also earns in the form of interest and dividends. The government earns interest from its deposits in banks and also from the loans given to its employees and other governments.
iv. Fines: Fines and fees are two different things. The fee is collected in lieu of services provided whereas fine is imposed on person or institution for the violation of rules of good conduct abided by the law. It is imposed to maintain social harmony, law and order. The breaching of traffic rules, smoking in public places, train journey without a ticket, riding motorcycles without helmets, breaking the speed limit are all liable to be fined. The fines imposed on individuals and companies for not paying the taxes, late payment of taxes or other fees are included under this head and further add to the non-tax revenue receipts.
v. Transfer payment: The grants and aids received by the government from the higher level of government, foreign governments, international organisations or donations from any individual or organisation whether in form of cash or kind are known as the transfer payment or unilateral payment. It is made either in case of emergency or for any specific purposes. It does not include the investment grants and capital transfer or any other transfer as they are not current non-tax revenue.
vi. Seigniorage: Seigniorage is the profit made by the government by issuing currency. The profit is the difference between the face value of the money and their production cost. The national government has the sole right to print currency notes and coins. It is one of the important sources of non-tax revenue in the form of profit.
Table 2.Percentage Composition of non-tax revenue of the central government
Source: Union Government Budgets.
|year||Fiscal services||Interest receipts||Economic services||Dividends and profits||Other general services||Social services||Grants-in-ad and contributions||UTs without legislature|
In Indian the major sources of non tax revenue are similar as mentioned above but are categorised as following:
- Profits and dividends from public sector undertakings(PSUs)
- Interest from internal and external lending
- Income from fiscal services
- Revenue from general services like power distribution
- Fees, penalties and fines
- Grants and aids from internal and external sources
Table 2 depicts the proportion of various sources of non-tax revenue in India since 1991. The share of interest receipts and dividend and profit receipts was higher among the other sources of the non-tax revenue. The share of the interest rate has increased due to increased interest rates. It has started showing a decline since 2001-02 The decline and major reasons behind this declining trend were the lower interest receipts from the states, due to the termination of the practice of on-lending by the centre to the states and the interest relief granted to the states following the implementation of the debt consolidation and relief facility, as recommended by the Twelfth Finance Commission.
The continuous increase in dividends and profit was mainly due to an increased payout received from the central public sector enterprises. The transfers from the Reserve Bank of India (RBI) are also an important component of the dividend and profits. Transfer from the RBI has increased due to the earnings from the deployment of the foreign currency assets, conversion of the Treasury Bills into marketable securities and discontinuation of the practice of crediting large sums to the National Industrial Credit Long Term Operations Fund.
From 2007–08 onwards, dividends and profit also include proceeds from the sale of spectrum and the exploitation of the offshore oil and gas reserves that further increased its share in the non-tax revenue receipts. The share of economic services and grants and contribution also adds a considerable proportion to the non-tax revenue.
- As per the latest Union Budget 2020-21, the Finance Minister Nirmala Sitharaman announced following estimates regarding non tax revenue:
Revised estimate of interest receipt on States is Rs.4610.63 cr and budgeted estimate for interest receipt for 2020-21 Rs.5313.20 cr.
Revised estimate of dividend from public sector is Rs. 48256.41 cr and budgeted estimate for 2020-21 is Rs. 65746.96 cr.
Revised estimate of fiscal service for 2019-20 is Rs. 703.65 cr and budgeted estimate Rs.750.80 cr.
Revised estimate of total economic service Rs.105435.92 cr and budgeted estimate for 2020-21 is Rs. 188825.02 cr.
Pattern of Non-tax revenue
The federal nature of the constitution of India provides a division mechanism for the distribution of both tax revenue and non-tax revenue among the different layers of the government. The pattern for collection and distribution of non-tax revenue is mentioned with clear distinction on the basis of departments collecting it and the ownership of the department collecting it under the manual of Indian constitution. For example, the railway board comes under central government and electricity board comes under state government hence the non-tax revenue receipts collected under railways goes to central government and the same collected under electricity department goes to state government.
Table 3. Pattern of non-tax revenue
|Sources||Central government||State government|
|Interest||The interest earned on the loans given to the sates and union territories and the government employees.||The interest earned on the loans given to the municipal or local government and the government employees.|
|Dividends and profits||The dividends and profit from various shares and bonds held, transfer of surplus from RBI and public sector undertakings. Profit earned from industrial, commercial and financial undertakings under the union government.||Dividends and profit from Road Corporations, toll on Roads and Bridges. Profit earned from industrial, commercial and financial undertakings under the state government. Toll collected from municipal transportation goes to local government.|
|Fees||Fees on passport issue, visa issue, licences for industries, registration of ships and ferries and patent filing fee etc. Tuition fee on education and medical fee and other fees from central institutions.||Charges on caste certificate, marriage certificate, driving license and fee on education, sports and health facilities. Fees for issue of birth certificate and death certificate are collected by the local government.|
|Grants and donations||Foreign grants, grants from various international organisations and donations.||Grants and donations from union government. Grants from the union and state government go to the local government.|
|Fines and penalties||Fines and penalties on the services and violation of rules that comes under central government premises.||Fines and penalties on the services and violation of rules that comes under state and local government premises.|
|Sale of stationery and gazettes||Income from the sale of stationery and printing related to government publications.||Income from the sale of stationery and gazettes related to state and local government.|
|Other charges||Communication electromagnetic bandwidth; spectrum charges, annual license fee from telecom operators, entry fee from new operators, etc. receipts from defence services like services provided through canteen stores department.||Major and Medium Irrigation charges, Minor Irrigation charges, charges for police services, home guards services, municipal services, income from jobs through state public service boards, and charges on electricity and water supply.|
Trends of non-tax revenue in India
The major sources of earning of the government are tax revenue and non-tax revenue. Tax revenue contributes to the major portion of earning of the government in India whereas the earning from non-tax revenue is comparatively lower. The post-reform period is known for the period of opening of Indian economy to the world. The Liberalisation, Privatisation and Globalisation (LPG) policy has changed the structure of the economy. It has affected each and every sector. Compared to the pre-reform period, the absolute amount of revenue receipts has increased from Rs. 2876 cr in 1973-74 to Rs. 192605 cr in 2000-01 and further increased to Rs. 1962761 cr in 2019-20.
The proportion of tax revenue and non-tax revenue was Rs.3900 cr and Rs. 1114 cr during 1973-74. The proportion of net tax revenue and non-tax revenue in the post-reform period is illustrated in table 4. The data reveals that the absolute revenue receipts are increasing but the proportion of tax revenue is always greater than the proportion of non-tax revenue.
The rate of change in revenue receipts has been favourable since the post-reform period but has declined during the global financial crisis of 2008-09. But within a year or two, it has again caught its pace. The rate of change in non-tax revenue was positive till 2010-11 but shown a sharp decline in 2011- 12 and 2016-17 as shown in fig.2 and further increased to Rs. 313179 cr in 2019-20. Whereas the tax revenue increasing continuously and shown a sharp increase from 2010-11 onwards.
The proportion of nontax revenue is also lower than of the tax revenue. The total revenue in 1990-91 was Rs. 54990 cr with 29.1 per cent share of non-tax revenue and 70.9 per cent share of tax revenue. During 2015-16 the share of non-tax revenue to total revenue has declined to 19.1 per cent. It has touched its highest share of 29 per cent in 2001 and its average share has been about 23 per cent up to 2015-16 (Indian Finance Statistics, various issues).
Table 4. Central Government Receipts
Source: Budget document of the Government of India and Finance Accounts (various issues)
(Rs in crore)
|year||net tax revenue||direct tax||indirect tax||non tax revenue||interest receipts|
Figure 1. Trend of net tax revenue in India
Source: document of the Government of India and Finance Accounts (various issues)
Figure 2. Trend of non-tax revenue in India
Source: document of the Government of India and Finance Accounts (various issues)
Contribution to the GDP
The contribution of revenue receipts to the national income of India is not adequate to meet the total expenditure of the government. The government always tries that its revenue receipts exceed or at least equalise to the total expenditure. But in developing countries like India, it is quite difficult due to the developing nature of the economy. Poverty, inequality, unemployment, poor infrastructure etc increases the expenditure of the government and also reduces the amount of total tax collection compared to the total amount of population. Due to the low income and low living standard, the amount of revenue collected is low.
The share of revenue receipts in the Gross Domestic Product (GDP) has shown variation throughout the post-reform period. During 1981-82 the GDP was Rs. 1758050 cr and the share of the tax revenue and non-tax revenue was Rs. 11542 cr and Rs. 3482 cr respectively. Since 1990 the absolute amount of GDP has been increasing with the increasing contribution of the tax revenue and non- tax revenue. During 2000-01 GDP was Rs. 21774130 cr and the share of net tax revenue was 136658 cr with Rs. 55947 cr contribution of non-tax revenue. The share has increased to Rs. 1484406 cr (net tax revenue) and Rs. 245276 cr (non-tax revenue) with Rs. 190101600 cr GDP in 2018-19.
Whereas the share of non-tax revenue is always lower than the share of tax revenue in the GDP. Fig 3 depicts the trends of non-tax revenue to GDP ratio in India. The graph is showing continuous variation in the ratio. Since 1990-91, it has shown an increasing trend up to 2001-02 and after that, it started declining. A sharp decline is noticed in 2005-06 that has further declined to 0.13 per cent in 2011-12. After that, it has improved but its contribution is comparatively lower than the previous years.
The comparison between the contribution of tax revenue and non-tax revenue to the GDP is shown in fig.4. The trends of non-tax revenue in India illustrates that throughout the post-reform period the tax to GDP ratio is higher than the non-tax revenue to GDP ratio. The gap between their respective contributions is also quite high. In 1991-92 the non-tax to GDP ratio was 0.2369 per cent and the tax to GDP ratio was 0.7430 per cent as depicted in table.4. In 2015-16 the contribution of non-tax revenue was 0.1824 per cent and that of tax revenue was o.6825.
Figure 3. Non tax revenue to GDP ratio
Figure 4. Comparison between non tax revenue to GDP and tax revenue to GDP
Table 5. Post reform variations in non tax revenue to GDP and tax revenue to GDP
|year||non tax revenue to GDP ratio||tax revenue to GDP ratio|
Tax and non-tax revenue impact the economy. An increasing trends of non-tax revenue in India has also many economic significance. As the tax revenue has both positive and negative effects, the non tax revenue has also some economic impacts that are mentioned below:
Foreign Aid: Foreign aid grants with conditions. Some of the conditions are favourable for the countries accepting grants or some have bad implications. Foreign grants for the projects like for infrastructural development, for removal of poverty and for improvement of health and hygiene have good economic impacts whereas some of the conditions attached with grants might shift the priorities of the government in accordance with people’s wish to the interest of the donor country or organisations.
Grants from higher authority to lower authority: The misallocation of grants given by the central government to the state government is a frequent phenomenon either due to corruption or improper implementation.
Fines: Fines are imposed for maintaining social harmony and the rules abided by the law. But economist explores that the fines are not optimal fines. It may lead to erosion of the income of an individual. Hence, it should be optimised to reap the benefits of the non-revenue tax.
Fee: It is collected in lieu of the services provided. It is imposed to reduce the over-involvement of the people and also to earn revenue. Sometimes fee collection takes the form of monopoly power and harms the people’s welfare.
Interest, profits and dividends: These are the major sources of non-tax revenue in India. They may act as good supplements of the tax revenue but cannot substitute it. These elements work under certain limits and for the fulfilment of certain purposes.
Seigniorage: The RBI and national government made huge profit via the printing of notes and coin minting. Seignorage is largely known to finance the deficit in the government’s fiscal budget. It is also known as a silent tax. It does not reduce the purchasing power of the people but sometimes leads to inflation due to excess supply of money in the market.
The study about the trend and pattern of non-tax revenue in India since the post-reform period reveals the variation in non-tax revenue and its importance for the state government and the central government. The proportion of non-tax revenue in the revenue receipts or trends of non-tax revenue in India has been increasing in absolute value since 1991 but its relative value has shown variations. It has increased from Rs. 11976 cr in 1990-91 to Rs. 245276 cr in 2018- 19 but its relative contribution in GDP has declined from 0.20 per cent in 1990-91 to 0.12 per cent in 2018-19. The reason for this decline is the underperformance of PSUs and rampant corruption. The other reasons are the declined interest rates and the limitations on the dividends and profit received by the government.
The non-tax revenue is very important for the development of the socio-economic infrastructure of the economy. It is a major tool to meet the revenue deficits and for upgradation, maintenance and modernisation of the basic social overheads. It is a source to increase the efficiency of the revenue system. Hence, there is a requirement of policy intervention for the implementation and regulation of non-tax revenue. When the economy shifts from the phase of economic development to economic growth, it leads to stagnation in the amount of tax revenue. In this situation, non-tax revenue can play a major role.
Author: Juhi Singh Post Graduate Student Central University of South Bihar
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