PUBLIC FINANCE:

Public finance:
Public finance can be classified into three
groups:

 Government expenditure
 Government revenue
 Government debt and its management.
 Government expenditure are all those form of expenditure incurred by the
government for development of the country e.g. on new buildings etc. and
also the non-development expenditure.
 Government revenue comes from taxation i.e. direct taxation and indirect
taxation.
 Government debt is obtained from internal and external sources i.e. when the
government obtains loans it will be the debt and the use of loans and debt
servicing involves management.
 Loans from internal sources are obtained through selling government
securities to the people, whereas external sources are those as the world
bank, IMF etc.
DIFFERENCE BETWEEN PUBLIC FINANCE
AND PRIVATE FINANCE.
DIFFERENCE BETWEEN PUBLIC FINANCE AND
PRIVATE FINANCE.

BALANCING INCOME AND EXPENDITURE:

• An individual adjusts his expenditure in accordance with

the given income .
• On the other hand, the government, relatively speaking,
adjusts its income in accordance with its expenditure.
DIFFERENCE BETWEEN PUBLIC FINANCE AND
PRIVATE FINANCE:

TIME-SPAN

The government declares its expenditure for a certain

periods usually one year and meets the required limit within
the stipulated time.

The individual is not bond to such a requirement.

He may plan his expenditure

DIFFERENCE BETWEEN PUBLIC FINANCE AND
PRIVATE FINANCE

ACQUISITION OF LOANS:

• The government may obtain resources internally and

externally. e.g. world bank, IMF are externally by selling
government securities to the people.

• The only visual possibility of obtaining resources in such

a periods is from state welfare department.
DIFFERENCE BETWEEN PUBLIC FINANCE AND
PRIVATE FINANCE

EXTRAORDINARY CHANGES

• Public finance to a great extent depends upon

the type of government.

• An individual has no choice, he can only spend

within limit.
DIFFERENCE BETWEEN PUBLIC FINANCE AND
PRIVATE FINANCE

FUTURE PLANNING:

• A government will do their almost best to

ensure that the future to come will be a
prosperous.
• Individuals are more optimistic.
DIFFERENCE BETWEEN PUBLIC FINANCE AND
PRIVATE FINANCE

SURPLUS BUDGET:

• A surplus government budget reflects a bad image on

itself to the people in general.
• A surplus budget for the individual is better in the sense
that surplus money can be used for purpose.
DIFFERENCE BETWEEN PUBLIC FINANCE AND
PRIVATE FINANCE

• ISSUE OF CURRENCY:

• The government prints more money when it

feels that the nation has been over burdened
with tax.

• An individual cannot do so as it is a crime and

would result in him going\serving a sentence.
DIFFERENCE BETWEEN PUBLIC FINANCE AND
PRIVATE FINANCE

PUBLICITY OF FINANCE:
• The annual budget or rather public finance is made
known to all. It is declared by the minister of finance.

• On the other hand individuals are generally more

secretive about their budget.
DIFFERENCE BETWEEN PUBLIC FINANCE AND
PRIVATE FINANCE

RECORD OF FINANCE:

• The government usually keeps records of its budgets i.e.

of previous years.

• However, the individual is less likely to do so and would

spend at his own will regardless to what has happened
or what may even happen!
DIFFERENCE BETWEEN PUBLIC FINANCE AND
PRIVATE FINANCE

Use of financial resources:

• The government utilizes its resources for social benefit.

• However,indiviuals generally allocate their resources

under the law of equi-marginal utility.
Sources of government
revenue:
Sources of government revenue:

Taxes:
> This is the most important source of
government revenue.

> “taxes are general compulsory

contribution of wealth levied upon
person natural or corporate to defray the
expenses incurred in conffering common
benefit upon the residents of state.

17
Sources of government revenue:

> Fee:
> A fee is a form of compulsory
payment made by a person for
return of service.

> A classic example would be

education fees.
18
Sources of government revenue:

Price:
> This is a compulsory payment for
goods provided by the government,
for example. multipurpose projects
water works etc.

> The government in turn charges a

certain price for these goods used by
people in general.
19
Sources of government revenue:

Special assessment:
> This kind of payment is said to be a
special form of tax as it only affect a
particular locality or area.

> The government builds a bridge

connecting mainland and the island.

20
Sources of government revenue:

Royatly:
> Suppose ‘A’ takes a piece of land
from the government and makes a
profit of say 100 million.

> Assuming that 20% of the profit is

to be paid to the government.

21
Sources of government revenue:

Income from government

property:
> Sometimes government sells its
property to obtain revenue e.g. the
government property mat be in the
forestry sector or any other wide
price of land.

22
Sources of government revenue:

Income from government enterprises:

> Government bodies or government enterprises
such as the national airlines, insurance
agencies, commercial blanks etc. earn
substantial amount of profit annually.

> These bodies, surplus income or profit becomes

part of the government revenue.

23
Sources of government revenue:

Interest income:
> This form of revenue is obtained by
the government through the loans
being initiated by it to the respective
person.

> Such loans may be for business

transactions on behalf of commercial
banks.
24
Items of government
expenditure:
 ITEMS OF GOVERNMENT
EXPENDITURE:
Defense and internal security:
• Expenditure on defense for a country is usually
determined by surrounding circumstances.

• Internal security of police and other uniform service is

must in every country, for it is in their hands to ensure
peace and law and order is maintained.
 ITEMS OF GOVERNMENT
EXPENDITURE:
• Civil administration and courts:

• Civil servants and other government staff

salaries are paid by the government.
• The court, on the other hand, particularly
the judiciary are also paid a handsome
allowance.
 ITEMS OF GOVERNMENT
EXPENDITURE:
• Education and social welfare:

• The government sets up schools and higher mediums of

education with the revenue obtained partly and allocated
a certain part of its budget for that purpose as well.

• Likewise health centre, orphanage homes etc. are setup

by the government in the interest of the people in
general.
 ITEMS OF GOVERNMENT
EXPENDITURE:

• Communication, transport and irrigation projects:

• Roads, railways, ships and airplanes are provided by the

government for purposes of transport and communication.

• Likewise irrigation projects such as dams, hydroelectric generators

etc. are built for the benefit of the country.
 ITEMS OF GOVERNMENT
EXPENDITURE:
• Foreign relations and foreign loans:

• For diplomatic purposes a government would have to

build or at least provide money for payment of rent on an
embassy in the host country.

• Similarly, the government has to pay back its debt i.e.

loans obtained from foreign bodies.
CANONS OF TAXATION:
CANON OF TAXATION:

• Canon of equality:

• The word here does not mean that everyone should pay the
equal amount of tax.

• What equality really means here is the amount of sacrifice

suffered by each tax payer that has got to be equal so that the
rich pay more and poor pay less.
CANNON OF TAXATION:

• Canon of certainty:
• Tax payer ought to be aware of the purpose,
amount and manners of payment.
• Everything should be made clear and simple for
the benefit of the tax-payer.
• Uncertainty leads to corruption.
• Publicity is usually given to budget proposals for
discussion as well as criticism.
CANNON OF TAXATION:

• Canon of convenience:
• In this canon we say both elements i.e. time
and manner of payment must be coventient
for tax payer so that he is able to pay his
taxes in due time e.g. if farmers were to pay
taxes payer on their crops before they were
harvested, naturally they would not be able
to do so.
CANNON OF TAXATION:

• Canon of economy:

• This canon means that tax would be economical if the cost of

collecting it is very small.

• The whole amount taken out of peoples pocket should go directly

to the treasury.

• There should not be any leakage in the way i.e. to say that the
expenditure on tax collecting should be kept as low as possible
and minimize the tax return
CANNON OF TAXATION:

• Canon of productivity:

• This canon means that production should

encouraged rather than otherwise.
• The productive capacity of the community should not
be crippled or impaired.
• The government should avoid running into a deficit
whenever possible.
CANNON OF TAXATION:

• Canon of elasticity:
• This would depends upon the state of affairs
prevailing in a country.

• As a country’s needs arise, likewise revenue

should also be increased otherwise (revenue)
will be inadequate e.g. during the phase of war.
CANNON OF TAXATION:

• Canon of simplicity:

• This canon emphases that method of taxation

should be made a simple procedure for the
layman to understand.

• It should be plain, nontechnical and straight

CANNON OF TAXATION:

• Canon of diversity:

• According to this canon, taxation should be

abroad based i.e. to say there should be taxes of
all kinds so that the whole community shares the
burden.
• There should be variety of direct and indirect
taxes.
CANNON OF TAXATION:

• Canon of economic development:

• Productive resources should be fully utilized in

the private sector and it should be allowed.
• If the resources are being wasted they ought to
be shifted to the government through taxation.
KINDS OF TAXES:
 KINDS OF TAXES:
• Taxes can be generally classified into two
groups:

• Direct and indirect tax

• Proportional, progressive and regressive

tax.
 KINDS OF TAXES:
• Direct tax:

• Direct taxation are those kinds of tax whose incidence can not be
shifted to anyone else. Such a tax is to be borne by the tax payer
himself. E.g. income tax

• Indirect tax:
• Indirect tax are those kinds of tax whose incidence is actually being
shifted to the ultimate consumer. E.g. daily commodities.
 KINDS OF TAXES:
• Proportional, progressive and regressive tax:

• A proportional tax is one that is to be paid at a fixed rate i.e. to say it is

a fixed rate to everyone.

• If the rate of taxation as a income tax is 5%, then it is the same rate as
imposed.

• A progressive tax is a kind of tax which depends upon the level of

income .
• As we mentioned earlier in proportional tax, the tax payer with a higher
income will naturally pay more but in the case of progressive tax, he will
be paying even higher amount of income tax.

• Regressive tax reveals the fact that with an increase in the income tax
burden is reduced and vice-versa.

• Such a tax is said to be cruel in the sense that the burden is felt a lot
more by the poor than the rich.

• Generally a government would not impose such a tax but never-the-

less it does happen.