Question

Study the given picture carefully:

Sources of State and Local Government tax revenues for a financial year

Answer the following questions based on common knowledge and picture:

1. Categorise the given items in the picture into tax/non-tax receipts.
2. “Government has started spending more on providing free services like education and health to the poor.”
   In the light of above statement, explain how the government can use the budgetary policy in reducing ‘inequalities of income’.

Answer 1

1. Tax Receipts	Non-tax Receipts
   Individual Income Tax	Fines
   Property Tax
   Sales and Gross Receipts Tax
   Corporate Income Tax
   Motor Vehicle Licence Fee.

2. Government uses the budgetary policy in reducing ‘inequalities of income’ in following ways:
   1. A progressive taxation system is in place, which means that higher income means higher tax; lower income means lower tax.
   2. Tax receipts are utilised to benefit those in need. Giving BPL people free rations, free education, and free health care, for example.
   3. Provision of public amenities such as roads, railways, water, street lights, and so on at a low cost so that poor people do not go without these services.
   4. Direct benefit transfers, such as subsidies for necessities.