Definition

It is the process by which the sovereign, through its

law making body, races revenues use to defray

expenses of government.
It is a means of government in increasing its revenue
under the authority of the law, purposely used to
promote welfare and protection of its citizenry.
It is the collection of the share of individual and
organizational income by a government under the
authority of the law.

Characteristics of good tax structure

The tax system should be fair or equitable;
It should cause the least possible harmful effects on

the economy and to the extent possible promote its

growth;
It should be simple both for administration and
compliance; and
It should be income elastic.

Direct taxes
Direct taxes are collected from the public directly.
That it is to say, these taxes are imposed on and

collected from the same person.

One cannot evade paying the tax if it is imposed on
him.
Income tax, wealth tax, corporate tax, gift tax, estate
duty, expenditure tax are good examples of direct
taxes.

Indirect taxes
Taxes imposed on commodities and services are

termed as indirect taxes.

There is a chance for shifting the burden of indirect
taxes.
The incidence is upon the person who ultimately pays
it.
Examples of indirect taxes are excise duties, customs
duties and sales taxes (commodity taxes)

FISCAL DEFICIT

Definition
Fiscal deficit is the difference between the

governments total expenditure and its total

receipts(excluding borrowing).
If the Government spends more than it earns we have a
situation which is called a fiscal deficit.
Fiscal deficit=government spending government
revenue

Elements of Fiscal Deficit

Generally fiscal deficit takes place due to either

revenue deficit or a major hike in capital expenditure.

Revenue Capital
Deficit expenditure

Revenue deficit
The difference between the governments current

expenditure and total current receipts (that is,

excluding borrowing)
Revenue deficit=budget revenue- actual net revenue

EXAMPLE
Expected

Actual

Revenue=Rs 100/-

Revenue=Rs 90/-

Expenditure=Rs 75/-

Expenditure=Rs 70/-

Net revenue=Rs 25/

Net revenue=Rs 20/-

REVENUE DEFICIT=RS 5/-

Capital expenditure
Capital expenditure is the amount a company spends

on buying fixed assets, other than as part of

acquisitions.
The capital Expenditure is the fund used by an
establishment to produce physical assets like property,
equipments or industrial buildings.
Capital expenditure is made by the establishment to
consistently maintain the operational activities.

Causes of fiscal deficit

Payment of interest
Poor performance of public sector
Excessive government borrowings

Tax evasion
Increase in subsidies
Defense expenditure