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FACTORS DETERMINANT TAX

REVENUE IN INDIA

GROUP 14:VIJAY.A
VIJAY.G
VINUTH.M.N
VIKAS NAG.V

INTRODUCTION
Tax can be defined as the charge levied by the government
of a country upon its habitants for its support or for the
purpose of facilitating the public of that country. It is neither
a voluntary payment by the tax payer nor like a donation.
Rather it is an enforced payment to the government. On
nonpayment of it, the tax payer will be punishable by law.
The purpose of taxes is to create welfare for the society by
providing public services, protection to properties, defense
expenses, economic infrastructure etc.
Findlay Shirras, the well-known authority on economics of
public finance defines taxable revenue as the limit of
squeezability, i.e., the extent to which the people of a
country can be oppressed so as to make it to give money for
the public revenue.
There are four main purposes of taxation which are
revenue (collect a sum of money for government),
redistribution (transfer from rich to poor),
reprising (levied on harmful things e-g; tobacco, carbon),

HOW TAXES ARE LEVIED


TAXES ARE LEVIED AT DIFFERENT PERCENTAGE RATES.
THESE PERCENTAGE RATES ARE DETERMINED BY
COMPARING WITH INCOME OR CONSUMPTION LEVEL. IT
HAS THREE BASIC TYPES THAT ARE PROGRESSIVE,
REGRESSIVE AND PROPORTIONAL RATES. THERE ARE
TWO MAJOR TYPES OF TAXES WHICH ARE DIRECT AND
INDIRECT TAXES.
THERE ARE DIFFERENT VIEWS ABOUT THE DEFINITION
OF THESE TWO TYPES.
> IN SIMPLE WORDS IT CAN BE DESCRIBES AS DIRECT
TAXES ARE THOSE THE BURDEN OF WHICH IS DIRECTLY
BORN BY THE TAX PAYER
> CONTRARY TO THIS IF THE BURDEN OF TAXES IS
TRANSFERRED TO OTHER OR PUBLIC, ARE CALLED
INDIRECT TAXES

Tax Revenue:
Tax revenue is influenced by a variety of factors. In the short run,
tax revenue may be less. In the long run, tax revenue of a
country may increase on account of economic growth and rise in
national and per capita income. Again, distribution of income
and wealth also affects taxable revenue. Paradoxically, a high
degree of inequality in the distribution of income and wealth
implies a high index of relative taxable revenue. Tax revenue
also depends on governments spending and functioning also.
If the government is efficient and undertakes successful welfare
programmes, peoples patriotism and democratic attitude are
encouraged so that the taxable revenue will be high, since
people would be ready to sacrifice more and more. Similarly,
sound monetary and fiscal policies of the government when they
lead to economic stabilization and economic development, this
helps to increase in tax revenue of the economy.

MAJOR FACTORS DETERMINING TAX


REVENUE:THE FACT IS THAT THE TAXABLE REVENUE IS NOT RIGIDLY FIXED. IT IS A MOVING POINT. IT IS
RELATIVE TO SO MANY FACTORS THAT ANY CHANGE IN ANY OF THEM IS BOUND TO CHANGE OUR
ESTIMATE ABOUT THE TAXABLE REVENUE OF A NATION. FINDLAY SHIRRAS GIVES THE FOLLOWING
FACTORS WHICH DETERMINE THE TAX REVENUE OF A NATION.

1.

NUMBER OF INHABITANTS.IT IS PRETTY CLEAR THAT THE BIGGER THE

AMOUNT, THE LARGER IS THE TAXABLE REVENUE OF THE SOCIETY TO ADD TOWARDS THE
OPERATING COST OF THE MANAGEMENT. FROM THIS POINT OF VIEW INDIA IS WELL PLACED. ITS
TAXABLE REVENUE WILL INFINITELY INCREASE WHEN THE PROPER ECONOMIC DEVELOPMENT OF THE
COUNTRY IS BROUGHT ABOUT.
2.

DISTRIBUTION OF WEALTH.IF CAPITAL IS MORE UNIFORMLY DISSEMINATED,

THE TAXABLE REVENUE WILL BE EQUALLY ABRIDGED. BUT IF THERE ARE BIG ACCRETIONS OF CAPITAL
IN THE MINORITY HANDS, THE MANAGEMENT CAN COLLECT ADDITIONAL MONEY BY LEVYING TAXES
ON THE RICH.
3.

METHOD OF TAXATION.A SYSTEMATICALLY CREATED TAX SYSTEM WITH AN

INTELLIGENT COLLABORATION OF SEVERAL TYPESOFTAXES,DIRECT AS WELL AS INDIRECT, IS


CERTAIN TO FETCH IN A BETTER YIELD. OUR TAX SYSTEM IS NOT SO MUCH DIVERSIFIED, E.G., WE
HAVE NOTAXESON LARGE AGRICULTURAL INCOMES. THIS CERTAINLY REDUCES THE TAXABLE
REVENUE.

4.

PURPOSE OF TAXATION.IF THE INTENTION OF TAXATION IS TO

ENCOURAGE INTERESTS OF THE PUBLIC, THEY WILL BE MORE EAGER TO TAXING THEMSELVES.

PSYCHOLOGY OF TAX-PAYERS.MUCH RELIES ON THE PEOPLE'S

5.

APPROACH TOWARDS AN ADMINISTRATION. A WELL-LIKED GOVERNMENT CAN STIMULATE THE


WILL OF THE PUBLIC AND TRAIN THEM FOR LARGER SACRIFICE. A REQUEST TO NATIONALISM IS
OVER AND OVER AGAIN THE REASON OF THE VICTORY OF A FISCAL MEASURE. THIS IS WHAT
MAKES WAR LOANS SUCCESSFUL. PSYCHOLOGY OF THE PUBLIC IS A VITAL FEATURE, AND
UNLESS THEY ARE APPROPRIATELY ADVANCED, THEY MIGHT BE RELUCTANT TO TAXING
THEMSELVES.

STABILITY OF INCOME.IF THE REVENUE OF THE RESIDENTS IS UNSTABLE,

6.

THERE WILL BE NOT MUCH REVENUE FOR ADDITIONAL TAXATION. THE VAGARIES OF THE
MONSOONS IN INDIA ACCOUNT FOR A LOWER TAXABLE REVENUE. IT IS ONLY ON STABLE
INCOMES THAT LONG-TERM FINANCIAL ARRANGEMENTS CAN BE BASED.

INFLATION.IT REDUCES THE BUYING REVENUE OF THE NATION AND IT CRIPPLES

7.

COUNTLESS INDIVIDUALS; IT HAS AN UNPLEASANT RESULT ON TAXABLE REVENUE.

THE SIZE OF POPULATION:TAXABLE REVENUE IS VERY MUCH AFFECTED


BY THE INCREASE IN NATIONAL INCOME AND BY
THE RATE OF GROWTH IN POPULATION. IF THE
INCREASE IN NATIONAL INCOME IS GREATER THAN
THE GROWTH IN POPULATION, THE PER CAPITA
INCOME GOES UP. THE TAXABLE REVENUE OF THE
INDIVIDUAL RISES. IF THE RATE OF GROWTH OF
POPULATION IS HIGHER THAN THE NATIONAL
INCOME, THE TAXABLE REVENUE DECREASES.

THE DISTRIBUTION OF NATIONAL


INCOME:TAXABLE REVENUE IS ALSO INFLUENCED BY
THE DISTRIBUTION OF NATIONAL INCOME WITHIN
A COUNTRY. IF THERE IS UNEQUAL DISTRIBUTION
OF WEALTH IN THE COUNTRY, THE TAXABLE
REVENUE WILL BE HIGH, BUT IF THE INCOME IS
EQUALLY DISTRIBUTED, THEN THE TAXABLE
REVENUE WILL BE LOW.

STANDARD OF LIVING OF PEOPLE:IF STANDARD OF LIVING OF PEOPLE IS HIGH,


THEY WORK MORE EFFICIENTLY SO THAT THEY
MAY ENJOY A STILL BETTER STANDARD OF LIVING.
WHEN THEY WORK ENTHUSIASTICALLY, THEY
RECEIVE HIGHER WAGES FROM THEIR EMPLOYERS.
TAXABLE REVENUE TENDS TO INCREASE THEN.

EFFECT OF INFLATION:IF COUNTRY IS IN GRIP OF INFLATION,


PURCHASING POWER IS REDUCED, TAXABLE
REVENUE OF NATION SHRINKS CONSIDERABLY.
BUT IF VALUE OF MONEY IS HIGH AND COUNTRY IS
NOT FACED WITH UNEMPLOYMENT, THEN TAXABLE
REVENUE OF PEOPLE IS QUITE HIGH.

PSYCHOLOGICAL FACTOR:PSYCHOLOGICAL FACTOR, IS A VERY IMPORTANT


FACTOR IN DETERMINING TAXABLE REVENUE OF A
NATION. IF PEOPLE ARE SATISFIED THAT
GOVERNMENT IS DOING ITS UTMOST TO RAISE
STANDARD OF LIVING OF MASSES AND IN
MAINTAINING PRESTIGE OF COUNTRY, THEN THEY
TRY TO SACRIFICE THEIR LIVES WHAT TO SAY OF
MONEY FOR THE GOVERNMENT. A SIMPLE
APPROACH TO PATRIOTISM BRINGS FORTH TONS
OF GOLD.

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