The taxes we pay make up a huge portion of the government’s revenue, but they aren’t the government’s only source of funds. There are revenue receipts that are not generated by taxing citizens, such as fees for public services, fines, profits from government-owned assets, Public Sector Undertakings (PSUs) dividends and profits, and interest on loans given out by the government. Along with taxes, these non tax revenue sources play a very important role in allowing the government to fund various projects and help develop the nation.
What is Non Tax Revenue?
To put it simply, any income the government earns from sources other than taxes is considered as non tax revenue meaning. If the government receives funds, and they aren’t classified as direct, indirect, or any other kind of tax, they fall under the category of non tax revenue. Generally, these sources include reliable and steady income streams like administrative fees, civil exam fees, fines, profits and dividends from PSUs, interest, and others, but sometimes non-tax revenue can also include one-time or irregular income from sources such as asset sales, foreign aid in case of disasters, and war reparations.
Understanding Non Tax Revenue with Examples?
Some small examples of non tax revenue are the revenue generated by the Indian Railways and the fees you pay to the RTO (Regional Transport Office) when applying for a driver’s licence. Another non tax revenue example is the examination fee charged by the government for competitive exams, such as civil services exams conducted by the UPSC or SSC. The income generated by these cannot be classified as taxes, but they still contribute to the government’s overall revenue. This makes them sources of non tax revenue.
Also Read: Understanding the Meaning of Tax Planning
Elements of Non-Tax Income
Components of non tax revenue include:
- Interest – The central government gives loans to state government and union territories for various non-planned and planned projects with a maturity period of 20 years. They also give loans to public sector enterprises, cooperative societies, port trusts and other institutions. The government earns interest on these loans, which makes up a significant portion of non-tax revenue.
- Power Supply Fees – The Central Electricity Authority (CEA) collects fees from power supply services which also forms a crucial part of non-tax revenue under the Electricity (Supply) Act. These fees include charges for electricity consumption by residential, commercial, and industrial users.
- Licencing – The government charges licensing fees for different kinds of permits. For example, companies can pay a fee to obtain exclusive rights to explore, extract, and produce petroleum. Since the government controls these natural resources, the fee can be in the form of royalties, lease payments, or licensing fees such as the Petroleum Exploration License (PEL) fee, or Production Level Payment (PLP). The government can also ask for a share of the profits made by the licensed company.
- Profits and Dividends – The RBI transfers the surplus profits to the central government. The government also earns income from dividends from its shareholding in public sector enterprises (PSEs) and government banks.
- Examination Fees – The government organises various competitive exams to select employees in various government positions. For example, the Staff Selection Commission (SSC) and the Union Public Service Commission (UPSC) conduct exams for recruitment into administrative, civil, and other government services. Those who appear for such exams are required to pay an examination or application fee when they apply for these exams, which is a part of non-tax revenue.
- Broadcasting Fees – Broadcasters such as DTH providers, FM radio services, and television operators pay various fees to government bodies like the Ministry of Information and Broadcasting (MIB).
- Communication Services Fees – The telecom companies pay fees, mainly licence fees to the Department of Telecom (DoT) for the right to operate and provide telecommunication services within the country.
- Escheats – When an individual passes away without a will or an heir, their property and assets revert to the government through a legal process known as escheat. The government then takes ownership of these assets, which can be considered non-tax revenue.
- Fines – Those who break the law, such as violating traffic rules, evading income tax, or committing any other crime often have to pay a monetary fine, which may or may not come with jail time. Fines thus make a small part of non-tax revenue for the government.
Importance of Non Tax Revenue
While direct and indirect taxes contribute to the majority of a government’s revenue, the role of non tax revenue should not be underestimated. Firstly, it gives the government an additional income apart from taxes, and the many sources of income help the government improve and maintain public infrastructure and raise the citizens’ quality of life. Secondly, it helps the government recover the expenses that come with maintaining the services it offers to citizens. Also importantly, non tax revenue is very helpful during times of an economic slump. Poor economic conditions can increase unemployment and decrease tax revenue, which makes non-tax revenue sources important for stability.
Also Read: Difference Between Tax Planning and Tax Management
Sources of Non Tax Revenue of State Government
There are several sources of non tax revenue for state governments, such as:
- State governments earn income from the services they provide such as electricity, water supply, and public transport systems.
- State governments collect application and exam fees from applicants who apply for various government jobs.
- They also earn profits from assets they own, such as real estate, and natural resources.
- Non-tax revenue is also generated from municipal services such as property registration fees and building permit fees.
- State governments also charge fees for various administrative services.
- The sale of stationery and other similar goods also generates non-tax revenue.
- Issuance of various licences and permits, such as vehicle registrations, driving licences, and licences for businesses and setting up industries also brings in non-tax revenue.
Does GST fall under non-tax revenue?
Goods and Services Tax is not considered a source of non tax revenue as it is a form of indirect tax. Whenever you purchase any goods or services you also pay the GST, which is included in the final price. Then, the seller of the goods or services collects this tax and remits it to the government, so it contributes to the tax revenue. Different types of goods and services have different GST rates, and some services such as healthcare, and some goods such as milk are exempt from GST.
FAQs on Non-Tax Revenue
Is GST a non-tax revenue?
No, GST is a type of indirect tax, which is included in the final price of any goods and services you purchase.
What is the Difference between Tax Revenue and Non-Tax Revenue?
Tax revenue includes income the government receives from imposing mandatory taxes on individuals, businesses, and other entities. These levies can be either direct, such as income tax, or indirect, such as GST. Non-tax revenue on the other hand includes the sources of income other than taxes, such as interest receipts, fines, fees, bills, and gains from the government’s services or assets. Non-tax revenue thus comes from services provided by the government and is payable when people use these services.
What is considered non revenue?
Non tax revenue comprises all the government’s sources of income, except taxes. Some non-tax revenue sources are fees for municipal services, electricity bills, fines, interest on loans, issuing licences, profit from the government’s assets, foreign aid, and charges for administrative services.
