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What is Non-Tax Revenue?

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Synopsis:


Non-tax revenue is the revenue earned by the government from sources apart from taxes. The most important source of non-tax revenue includes bills and fees paid by people on government services. For example, the government in India continues to be the major provider of utilities like electricity, gas, and water to people. The bills paid by people to avail of these services are sources of non-tax revenue.

 

The government provides many other services, like issuing driving licenses and passports to people. It also issues licenses and permits to commercial establishments. For all such services, it charges a fee, which is classified under non-tax revenue.

 

This revenue helps diversify the overall revenue base of the government. If not for non-tax revenue, the government will have to rely only on taxes as a source of revenue, which can be very difficult. It is not easy for the government to increase taxes. Hence, by supplementing tax revenue, non-tax revenue plays an extremely important role in the government’s finances.

The revenue earned by the government from sources not related to taxes is called “non-tax revenue.” It is an important source of revenue for the government. It helps the government collect funds that can be utilized to provide important services to people and for the overall welfare of the country. Read this blog, as it explains the meaning of non-tax revenue, its sources, and examples of non-tax revenue in great detail.

Understanding the Meaning of Non-Tax Revenue

The government primarily has two sources of revenue – tax revenue and non-tax revenue. As the name suggests, non-tax revenue is the revenue that is earned by the government from sources not related to tax.

To understand non-tax revenue, let us first talk about tax revenue. The government earns tax revenue through direct taxes (which include income tax, property tax, etc.) and indirect taxes (which include goods-and-services-tax or GST).

However, tax revenue is not the only source of revenue for the government, as it also earns through non-tax revenue.

The major source of non-tax revenue is the revenue earned by the government on the services it provides to people. For example, when the government provides utilities like electricity, water, or gas, it makes people pay bills, which are classified under non-tax revenue.

In India, the central government often provides loans to state governments. When the state governments pay interest on such loans, it is classified as non-tax revenue of the central government.

Besides, there are many public sector undertakings in India, which are owned by the government. The income earned from such undertakings is also clubbed under non-tax revenue. Having learnt what non-tax revenue is, let us delve deeper into this topic.

Major Sources of Non-Tax Revenue

The prominent sources of non-tax revenue are explained below:

  • Fees on administrative services: The government is responsible for providing administrative services to people, like issuing a passport, driving licenses, and commercial licenses. Besides, it also issues certificates on birth, marriage, and death. The government charges a fee for providing such services, which is a major source of non-tax revenue. This head also includes fees paid by the students of government schools/colleges and by patients in government hospitals.

  • Income from economic services: In India, the government continues to be the major provider of economic services, like supplying power, gas, water, and postal services. The government is also responsible for collecting garbage and providing drainage services. The fees paid by people for such services come under this head.

  • Income from the government’s property: The government owns property (including natural resources) in many forms in India. When it allows someone to use such property, it makes them pay a charge, rent, or fee, which is classified as non-tax revenue. For example, the government makes people pay a toll for using roads and bridges, which comes under this head. It makes private companies pay a royalty for extracting natural resources, which too is classified under this head.

  • Fines: The government imposes fines on people for not following the law. For example, people have to pay a fine for not following traffic rules or for smoking in public. They pay a fine for travelling in government buses or trains without a ticket. When people or companies pay taxes late, they have to pay a fine. All these fines are classified under non-tax revenue.

Difference Between Tax Revenue and Non-Tax Revenue

The main differences between tax revenue and non-tax revenue are explained below:

Tax Revenue

Non-Tax Revenue

The government’s tax revenue comes from the taxes it imposes on people and entities. For example, income tax and corporate tax come under tax revenue. Then, indirect taxes which are paid when someone buys a product or service are also a source of tax revenue.

Non-tax revenue is in the form of fees or charges paid by people for utilising the government’s services. It also includes fines imposed by the government on people and entities for not following rules.

People and companies are under a legal obligation to pay income tax and corporate tax, respectively.

However, in the case of non-tax revenue, people pay fees or charges only when they utilise a service provided by the government. If they have not utilised a service, they do not have to pay any fees to the government.

The main objective of tax revenue is to generate revenue for the government which can be used for defence, education, infrastructure, etc.

The main purpose of non-tax revenue is to supplement the tax revenue of the government so that it has sufficient funds to invest in its projects.

Importance of Non-Tax Revenue in Government Finance

Non-tax revenue is extremely important in government finance. Here’s why:

  • Bills for supplying power, water, and gas help the government recover the costs of providing such services to people. If not for this form of revenue, the government would not be able to provide basic services to its people.
  • The government often uses its non-tax revenue to supplement its tax revenue so that it has sufficient funds for developmental projects like building bridges, hospitals, and schools and even for strategic objectives like defence.
  • If the government is getting sufficient non-tax revenue, it will be under less pressure to increase taxes to grow its tax revenue. Hence, non-tax revenue helps the government diversify its source of revenue and not rely only on taxes.
  • When the government grants licenses for certain businesses (like those selling alcohol, including restaurants, bars, hotels, and casinos), it helps the government regulate those businesses to ensure that they are following all the laws.

Examples of Non-Tax Revenue in India

The government collects non-tax revenue in many ways in India. For example, the fees paid by people for getting a driving license or passport come under non-tax revenue. Besides, the bills paid by the people for utilities like water, power, and gas provided by government entities are also classified under this category. Then, the fines paid by people and companies for late payment of taxes and the fines paid by people for not following traffic rules are examples of non-tax revenue. The income earned by public-sector-undertakings owned by the government is also a form of non-tax revenue.

Challenges in Collecting Non-Tax Revenue

Collecting non-tax revenue in India comes with quite a few challenges, which are described below:

  • Poor implementation of traffic laws: In India, quite a few people do not follow rules while driving. As per the law, they should be paying fines. However, they are often not fined for various reasons, which results in a shortfall in the government’s non-tax revenue.

  • Low public awareness: At times, a lot of people are not even aware that they have to pay for certain services provided by the government. Hence, they do not pay for such services, which is a huge challenge to overcome.

  • Bureaucratic issues: There are often delays and red-tapism in government departments and public sector undertakings, which affects the government’s efficiency in collecting non-tax revenue. For example, the government is still a major shareholder of many companies in India. If such companies are not managed properly, it results in a loss of revenue for the government.

  • Outdated technology: At times, the government uses outdated technology for administration, which also results in leakage in its non-tax revenue.

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Conclusion

Non-tax revenue is an important source of revenue for the government. It helps in the diversification of the government’s revenue base. If not for such revenue, the government will have to entirely rely on taxes to generate funds, which can be difficult. Hence, the government should collect non-tax revenue efficiently so that the funds thus mobilised can be utilised for the welfare of people.

Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.

This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.

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Frequently Asked Questions

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What is the meaning of non-tax revenue?

Answer Field

The meaning of non-tax revenue is the revenue earned by the government from sources that are not related to taxes.

How is non-tax revenue different from tax revenue?

Answer Field

While tax revenue is earned from direct and indirect taxes, non-tax revenue is earned from fees, charges, and fines levied by the government. Direct and indirect taxes have to be mandatorily paid. However, fees and bills (which are a part of non-tax revenue) are payable only when people avail of the services provided by the government.

What are the main sources of non-tax revenue?

Answer Field

Bills payable on services like power, gas, and water provided by the government, fees paid for getting a driving license or passport issued, and fines imposed for not following traffic rules are the main sources of non-tax revenue.

Why is non-tax revenue important for the government?

Answer Field

It provides the government with funds that can be utilised for developmental purposes. Besides, it helps the government provide services efficiently to its people. And, it helps the government diversify its revenue base.

How does non-tax revenue impact the economy?

Answer Field

If not for non-tax revenue, the government will be compelled to increase taxes to grow its revenue, which can adversely affect people and businesses. Hence, if the government has sufficient non-tax revenue, then it can manage the economy better.

Can non-tax revenue be a significant part of government income?

Answer Field

It depends upon the policy of the government whether it wants to make non-tax revenue a significant part of its income or not. The government has to consider many factors, like the impact on society and its finances while deciding how much revenue it wants from non-tax sources.

How can governments increase their non-tax revenue?

Answer Field

The government can increase its non-tax revenue by improving the efficiency of institutions involved in collecting such revenue. For example, the efficiency of the traffic police can be improved to collect fines from people who do not follow traffic rules.

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There were no instances of non-compliance by Bajaj Financial Securities Limited on any matter related to the capital markets, resulting in significant and material disciplinary action during the last three years. A graph of daily closing prices of the securities is also available at https://www.nseindia.com/

ANALYST CERTIFICATION

The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report.  

RISK DISCLOSURE ON DERIVATIVES

  • 9 out of 10 individual traders in equity Futures and Options Segment, incurred net losses.
  • On an average, loss makers registered net trading loss close to ₹ 50,000.
  • Over and above the net trading losses incurred, loss makers expended an additional 28% of net trading losses as transaction costs.
  • Those making net trading profits, incurred between 15% to 50% of such profits as transaction cost.

SEBI study dated January 25, 2023 on “Analysis of Profit and Loss of Individual Traders dealing in equity Futures and Options (F&O) Segment”, wherein Aggregate Level findings are based on annual Profit/Loss incurred by individual traders in equity F&O during FY 2021-22.

BROKERAGE DISCLAIMER

All leveraged intraday positions will be squared off on the same day. There is no restriction on the withdrawal of the unutilised margin amount. Brokerage will not exceed the SEBI prescribed limit. Visit : https://www.bajajbroking.in/pricing

MTF 

As subject to the provisions of SEBI Circular CIR/MRD/DP/54/2017 dated June 13, 2017, and the terms and conditions mentioned in the lights and obligations statement issued by the TM (if applicable).  

US INVESTING

International investment is not supervised by any regulatory body in India. Thus, any claim or dispute relating to such investment or enforcement of any agreement/contract /claim will not be under laws and regulations of the recognized stock exchanges and investor protection under Indian Securities Law. The account opening process will be carried out on Vested platform and Bajaj Financial Securities Limited will not have any role in it.  

MARKETSMITH / GOLDENPI / SOVEREIGN GOLD BONDS

Bajaj Financial Securities Limited is only distributor of this product. These are not exchange traded products and all disputes with respect to the distribution activity, would not have access to exchange investor redressal forum or Arbitration mechanism. Bajaj Financial Securities Limited is not a registered Investment Advisory. User discretion is required before investing. Client is requested to independently evaluate and/or consult their professional advisors before arriving at any conclusion to make any investment. The decision to invest shall be the sole responsibility of the Client and shall not hold Bajaj Financial Securities Limited, its employees and associates responsible for any losses, damages of any type whatsoever. 

IPO 

This should not be construed as soliciting investment. Investors’ discretion is required. Kindly consult your financial expert before investing. No need to issue cheques by investors while subscribing to IPO. Investments in securities markets are subject to market risks, read all the related documents carefully before investing.  

IPO FINANCING

IPO Financing is done through Bajaj Finance Limited. Bajaj Finance Limited (BFL or Lender) reserves the sole right to decide participation in any IPO and financing to the client shall be subject to credit assessment done by the lender. Also, BFL shall have full rights to decide the commercial terms for IPO and final application and financing shall be subject to all requirements being met by the client in a timely manner including documentation, account setup and payment of required Interest and Margin. Bajaj Finance Limited also reserves the exclusive rights to change any of the above-mentioned terms and conditions without prior notice to clients. The scheme margin is subject to change. UPI is mandatory to bid in all IPOs through our platform. As per exchange guidelines, all the UPI mandates will only be accepted till 5:00 PM on IPO closure day. 

SCREENERS 

Screeners is not Exchange-approved products and any disputes related to the same will not be dealt on the Exchange platform. 

SECURITIES 

Securities quoted are exemplary and not recommendatory. 

IPV 

Account would be open after all procedure relating to IPV and client due diligence is completed. 

IMAGES 

The images used are only for representation purpose. Proper due diligence has been done for the images and the image is not of any artist. The same is captured from royalty free sites. 

DISCLOSURE TO CLIENTS REGARDING PAYOUT OF FUNDS

As per SEBI circular no. SEBI/HO/MIRSD/MIRSD-PoD-1/P/CIR/2023/84 dated June 08, 2023, Stockbrokers are required to upstream the entire client funds lying with them to the Clearing Corporation. Based on client’s request the funds’ release request must be placed with the Clearing Corporation. Based on the internal process and cut-off timelines of the Clearing Corporation the funds will be released to the Stock Broker. In view of this new process, as specified by the regulatory and the cut-off time of Clearing Corporation/Banks processing the funds, Bajaj Financial Securities Limited cannot commit the exact time for releasing funds payout to its client. Clients are requested to note that, Bajaj Financial Securities Limited will not be responsible for any inconvenience caused to clients due to delay in release of funds payout, including fines, delayed charges, defaults, etc.