Non-tax revenue

Non-tax revenue

Subject: Economy

Context: The Covid crisis has stretched State finances by impacting both GST and cess collections. This, along with the imminent end of GST compensation in July 2022, has forced States to look at other revenue options.

Concept:

Tax revenue is charged on income earned by an individual or an entity (direct tax) and on the value of transaction of goods and services (indirect tax).

Non-tax revenue is charged against services provided by the government. It also includes interest charged on loans advanced by the government for various purposes.

Current situation of Non-tax revenue in states

• Both the Centre and States revenues have been on petroleum and alcohol GST levies,
• States also need to look closely at their non-tax revenues which are not insignificant at around 10 per cent of States’ total revenue collection
• The three main administrative non-tax receipts heads —
• general services,
• social services and
• economic services — account for about 80 per cent of States’ own non-tax revenue.

Steps that can be taken to augment Non-tax revenue

• To augment additional revenues from non-tax sources, the fees/user charges for the various services provided by the State government need to be reformed.
• The State must focus on meeting the cost of public services through proper pricing, wherever feasible.
• Services such as education and health are merit in nature and involve a degree of positive externality and, to some extent, subsidisation may be justified.
• The extent of subsidisation and its pattern over time need to be examined.
• It is essential to understand and appraise the performance of some of the non-tax sources of States with a view to examining their trends, identifying the factors responsible for their growth or lack of growth, exploring the scope for rationalising their price structures and, thereby, improving the overall budgetary position of the States as well as efficiency in resource use.
• One of the reasons States’ own revenues have been neglected is that they have not been able to create a credible State Finance Commission.