Fiscal system is the complete structure of government in which it manages its revenue and expenditure. Fiscal system includes activates like rising, collecting money from public, borrowing and spending it in different activates of government.
Fiscal policy is the method by which a government adjusts its spending and tax rates to monitor nation's economy. It is the sister strategy of the monetary policy through which a central bank influences a nation's money supply. These two policies are used in various combinations to direct a country's economic goals. The main concerns of fiscal policy are:
- Source of revenue for centre
- Expenditure of the centre
Source of Revenue for Centre
The major sources of revenue for state are:
- Tax revenue: Tax revenue includes income tax, corporate taxes, land revenue, stamp duty, registration and estate duty etc.
- Non tax revenue: Income from social, commercial and economic service and profits of state run enterprises.
Expenditure of the Centre
The major types of expenditure of the centre are:
- Planned Expenditure: Expenditure for Agriculture, rural development, irrigation, energy, industry and minerals, transport, communication etc. comes under the planned expenditure.
- Non Planned Expenditure: The major non-planned expenditure is defence, subsidies and interest payments etc.
Tax is a compulsory payment by the citizens to the government to meet the public expenditure. Types of tax are:
- Direct and Indirect Tax
- Progressive and Regressive Tax
A is levied directly on the income or profits of the person who pays it, rather than on goods or services. E.g:
- Income tax
- Corporate tax
- Gift tax
- Wealth tax
- Land revenue
- Entertainment tax
- Professional tax
A tax levied on goods and services rather than on income or profits. An indirect tax is one which is imposed on someone but whose burden is shifted to someone else E.g:
- Sales tax
- Service tax
- Custom duty
- Excise duty
- Value added tax
A progressive tax is a tax in which the taxable amount increases the rate of tax also increases. The term "progressive" refers to the way the tax rate progresses from low to high, with the result that a taxpayer's average tax rate is less than the person's marginal tax rate.
A tax in which income of a person goes up the rate of tax goes down. A regressive tax is a tax imposed in such a manner as the amount subject to taxation increases the tax rate decreases.
Revenue deficit arises when the government’s actual collected revenue (tax) is lower than the projected receipts (tax). On the contrary, if the actual receipts are higher than expected one, it is termed as revenue surplus.
The difference between total revenue (income) and total expenditure of the government is called as fiscal deficit. While calculating the total revenue, borrowings are not included. Fiscal deficit is indicators to the government that how much amount it have to borrow to complete the needs of nation.