http://ijopaar.org/ijopams.php/; 2017 Vol. 1(1); pp.

20-23, ISSN: 2456-4516

An Analysis of Government Tax Revenue in India

Priyanka Chawla1 & Prof. Pravin Saxena2

Abstract
Tax is the major source of government revenue, the development of any countries economy is largely
depends upon its taxation structure. The taxation structure of India is divided into two categories
Direct taxes and Indirect taxes. In the present paper an attempt has been made to study the trend
pattern of Direct and Indirect Taxes and its effect on total Revenue of India. Ten years data has been
taken into consideration and collected from the secondary sources i.e. Ministry of Finance and
Reserve bank of India. The Researcher used Regression Equation to analyse the results. The
research reveals that India is generating more revenue from Indirect Taxes and its major
contribution in Total Revenue.
Keywords: Indirect Tax, Direct Tax, Tax Revenue.
Introduction
The most important source of government revenue is taxes. Taxes can be defined as the charge
imposes by the government of a country upon its residents for the purpose of facilitating and support
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. The purpose of taxes is to create wellbeing for
the society by providing public forces, protection to properties, defence expenses and infrastructure
etc. There are four main purposes of taxation which are revenue (bring together a sum of money for
government), redistribution (relocate from rich to poor), reprising (charged on harmful things like
tobacco), and representation (accountability to general public by the government). A country gets
directly and indirectly affected by the tax rates, provisions and incentives. There are two major types
of taxes which are enforced by the government to the public which are direct tax and indirect tax.
Direct tax is referred to as the tax, impose on person's income and wealth and is paid directly to the
government (e.g. income tax, property tax and import and export duties), whereas Indirect tax is
concern to as the tax, charge on a person who consumes the good and services and is paid indirectly
to the government (e.g. central sales tax, value added tax VAT, excise duty and custom duty).
In developing country, the main purpose of imposing taxes is that they are the primary source of
government which can be utilised for the welfare of the country like defence, healthcare, education,
different infrastructure facilities like roads, dams, highways etc.
2. Review Literarature
Martinez et al. (2012) examined the impact of tax and expenditure policy on income distribution
using tax and macroeconomic variables from 1970 to 2009. The study revealed that faster growing
countries in terms of population growth looks to experience larger income inequality. On the
consequence of globalisation on inequality, it was exposed that globalisation increases income
inequality. They recognized that progressive income taxes (personal and corporate) reduced
inequality.
Saravanan and Meganathan (2014) highlighted that the major results of study is that the yearly
growth rate of service tax revenue is higher than the growth rate of revenue generated from the

1
Research Scholar, Faculty of Commerce, Dayalbagh Educational Institute (Deemed University),
Agra.
2
Professor, Deptt. of Accountancy and law, , Faculty of Commerce, Dayalbagh Educational Institute
(Deemed University), Agra

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central excise and customs. Hence it is indicated that the service tax is progressing faster in terms of
revenue generation than the central excise and customs. The can be concluded that the indirect tax is
losing its share in the total tax revenue of central government and direct taxes will gain prominence
with growing economy.
3. Objectivities of Study
1. To Study the Change in Trend of Contribution of Direct and Indirect Tax Revenue.
2. To know the involvement of Direct and Indirect Taxes to Total Tax Revenue of government from
2005-06 to 2014-2015.
4. Research Methodology
The present study examines the trend of Direct and Indirect taxes of India and its effect on Total
Revenue. For this purpose secondary data has been used. Ten years data from financial year 2005-
2006 to 2014-2015 have been taken into consideration. The collected data was classified, calculated,
tabulated and analyzed by using Regression Analysis. The purpose for generating regression line is
to see the individual effect of Direct and Indirect taxes on Total Revenue.
5. Hypothesis
In order to achieve the objectives of the study following hypotheses has been framed, these
hypothesis has been tested through linear regression model.
Ho: There is no significant effect of Direct and Indirect Taxes on the Total Revenue
6. Data Analysis
Objective: 1 -To Study the Change in Trend of Contribution of Direct and Indirect Tax
Revenue.

Trend Analysis of Government Tax Revenue in India

Source: Data Base of Reserve Bank of India

This Figure shows the Direct and Indirect taxes of India since 2005-06 to 2014-2015 have been
increasing year by year but Indirect Tax Revenue has growth rapidly as compare to Direct Tax
Revenue. In the year 2014-2015 there has been a rapid increment in Indirect tax Revenue by 30.7%
and Direct tax Revenue collection has grown by 10.9% from 2013-2014. Thus, Indirect Tax
Revenue is found to be better suited in developing countries because they have much wider
coverage as compare to Direct Tax Revenue. These are the indications of high level of economic
activities taking place in the economy.

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Objective: 2 -To know the involvement of Direct and Indirect Taxes to Total Tax Revenue of
government from 2005-06 to 2014-2015.
Ho: There is no significant effect of Direct and Indirect Taxes on the Total Revenue.
Y= o + 1 X1 +2X2 +
Where Y= Total Revenue, o = Y intercept, 1= Slope of direct taxes, X1 = Direct Taxes
2 = Slope of indirect taxes, X2 = Indirect Taxes, = Error variable .
Model Summary

R R Adjusted Std. Change Statistics

Square R Square Error of
the R Square F df df2
Estimate Change Change 1
.993 .986 .983 67293.5 .986 254.71 2 7

a. Predictors: (Constant), Indirect, Direct

Table-1 Model summary shows that value of R square is 98.6 % and adjusted R square value is
98.3 %. It means 98.3% variation in Total Revenue due to Direct and Indirect Taxes and the
remaining change in Total Revenue are due to Non-Tax Revenue items such as fee charges from
college or universities etc.

Coefficients
Model Unstandardized Standardized t Level of
Coefficients Coefficients Significance @
5%
B Std. Error Beta
(Constant) 105370.4 67151.946 1.569 .161
Direct x1 .553 .669 .347 1.725 .128
Indirect x2 .824 .255 .651 3.235 .014
a. Dependent Variable: Revenue
Table-2 shows that the regression line can be expressed as:

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Y= 105370.4+.553+.824X2+
The above equation shows that if the Direct Taxes increased by Rs. 1, the Total Revenue will be
increased by Rs .553, and if the Indirect Taxes increases by Rs. 1, the Total Revenue will be increased
by Rs .824. It means Indirect taxes have more significant impact on the Total Revenue. It is also clear
that the Co-efficient value of X1 (0.347) with significant value (.128) is positive but insignificant at
5% level whereas the Co-efficient value of X2 (.651) with significant value (.014) is positive and
significant at 5%. Hence, there is a significant relationship between the Indirect Taxes and Total
Revenue whereas there is insignificant relationship between Direct Taxes and Total Revenue.

7. Conclusion
Taxes are the greatest source of government revenue for running its operations. Revenue from taxes
has a great impact on the overall development of the economy. An analysis of India tax revenue
examined by regression line and result shows that India generating more revenue through the
indirect taxes as compare to direct taxes. Both Taxes are necessary to promote economic growth,
employment and stability. However in developing countries, Direct taxes has restricted scope and
hence, Indirect taxes plays a more significant role. A well oriented taxation required combination of
both taxes in different proportions.
References
1. Martinez, V. J., Vulovic, V., & Moreno, D. (2012). Direct versus indirect taxation:
Trends, theory and economic significance. International Studies Program, Georgia State
University, 0911.
2. Saravanan, R., & Meganathan, M. (2014). An Analysis of Revenue Receipts of India
with Special Reference to Tax Revenue. International Journal of Marketing, Financial
Services & Management Research, 3(12), 2277-3622.

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