Tax and Fee

TAX AND FEE
INTRODUCTION:
A tax is extraction of money by a public authority for public purposes and is a common burden
and the taxpayer in return gets to participate in the common benefits of the state was held in
the case of Sri Jagnath Ramanuj Das v. State of Orissa. The government has several means of
raising revenue in order for the state to function. Amongst them, the two most popular methods
of raising revenue are to impose tax and fees on various activities. A tax is a mandatory fee or
financial charge levied by any government on an individual or an organization to collect
revenue for public works providing the best facilities and infrastructure. The collected fund is
then used to fund different public expenditure programs. On the other hand, a fee is a levy
collected to provide a service that benefits a group of people from which the money is collected.
Generally, taxes are applied to various transactions, often as a percentage, as a means of raising
revenue or in some cases as a means of incentivizing behaviour. Fees, unlike taxes are directly
linked to the cost of providing a service. Generally there are three essential tasks taxation is
invested in are, revenue augmentation, redistribution of wealth in society and the regulatory
functions. These three functions go hand in hand and helps in the smooth behaviour of the state
economically. The following parts of the assignment consists of concept of tax, concept of fee,
distinction between tax and fee and the relevant case laws.
CONCEPT OF TAX:
According to the Merriam-Webster dictionary, a tax is usually sum of money imposed by

authority on persons or property for public purposes expenses such as defence, welfare,
Education, Health Care, Infrastructure etc. Tax is a compulsory payment to government under
any law. It can be charged by government on goods, income or any activity. The legislature is
vested with the responsibility and power to make laws. The judiciary interprets the Law and
Administration implements the law. There are two types of taxes namely Direct Tax and
Indirect Tax. In Direct tax the person who bears the burden of tax himself deposits it with the
Government such as income tax. In Indirect Tax the person who bears the burden of tax does
not himself deposits it with the Government such as a value added tax. Tax is imposed by the
government at different rates so as to distribute the burden of taxation among different sections
of society involved in taxable activities. The burden of tax or tax incidence is distributed among
sections such as consumers, producers, employers, professionals etc.
CONCEPT OF FEE:
According to Merriam Webster, a fee is a fixed price charged for a specific service. Fees are
applied in a variety of ways such as costs, charges, commissions, and penalties. Fees are most
commonly found in heavily transactional services and are paid in lieu of a wage or salary. Fees
are most often associated with transactional relationships, specifically to professionals who
provide services. In some cases, a fee is charged when an individual hires a business to do a
specific task, such as cleaning a house or filing taxes. This type of fee is often the most
transparent and transactional, as it represents payment for the sole reason a fee-charging
business was hired. Examples of transactional fees include mortgage fees and fees for wiring
money. The element that has to be considered while fee is concerned is that, it must be levied
in consideration of certain services which the individuals accepts voluntarily or not. The
relationship with the payment of a fee is quid pro quo.
DISTINCTION BETWEEN TAX AND FEE:
S.No CRITERIA TAX FEE

A tax represents money that a A fee is related to a tax in that it is
government charges an individual also a charge paid to the government
1. Definition
or business when they perform a by individuals or by a business. Fees
particular action or complete a are mostly imposed to regulate or
specific transaction. Taxes are control various types of activities.
levied in the greater interests of the
country.
2. Measured This tax is often assessed as a The fee rate is directly tied to the
percentage of the amount of money cost of maintaining the service.
involved in the transaction. Money from the fee is generally not
applied to uses other than to
provide the service for which the
fee is applied.
S.No CRITERIA TAX FEE
3 A tax is a levy collected A fee is a levy collected to

for general government provide a service that benefits
Levy collection
services. It is a way to the group of people from
generate revenue by Govt. which the money is collected.
It is charged for services
rendered by an individual
/Company.
4. Taxes may pay the salary A fee is assessed for an

of a teacher, police officer exacting service, and the
Administration & Application
or bureaucrat. They may money collected is usually
help pave a road or build a earmarked for that service.
school. They may finance The fee that we pay for
the running of the local inspecting your assets every
sewage-treatment plant. other year probably goes
directly to cover the costs.
5. Tax is a compulsory
payment.
Willingness to Pay Fee is a voluntary payment.
6. Repercussions of non- If a person does not pay If the fee is not paid, the
payment the tax imposed on him, he person cannot avail the
will be penalized. service.
7. Benefit The tax payer does not get The fee payer gets direct
any direct benefit. benefit after paying the fee.
8.
Examples Income tax, gift tax, health Stamp fee, driving license
tax and Value Added Tax fee, government registration
(VAT). fee.
CASE LAWS:
1. Matthews v. Chicory Marketing Board, the court observed that the distinction between a
tax and a fee lies primarily in the fact that a tax is levied as a part of the common burden, while
a fee is a payment for a special advantage, as for example, in the case of registration fee for
documents or marriage licences, is secondary to the primary motive of regulation in the public
interest. “A tax" according to the learned Chief Justice, 'tis a compulsory extraction of money
by public authority for public purposes enforceable by law and is not payment for services
rendered". A fee, on the other hand, is generally defined to be a charge for a special services
rendered to individuals by some governmental agency.
2. Commr. H.R.E. v. Sri Lakshmindra Thirlha Swamiar of Sri Shirir Mutt, one of the
earliest case dealing with the question whether the levy is a fee or a tax, this Court held that the
Constitution and, in particular; the legislative entries in Schedule VII of the Constitution make
a clear distinction between a tax and a fee.
3. Kishan Lal Lakshmi Chand & Ors. v. State of Haryana & ors, the apex court held that
there is no genetic difference between a tax and a fee. Both are compulsory extractions of
money by public authorities. Compulsion lies in the fact that payment is enforceable by law
against a person in spite of his unwillingness or want of consent.
CONCLUSION:
One of the major reasons as to why we should know the distinction between tax and fee is that
because, the legislature may sometimes impose a tax in the guise of levying a fee. This is called
as colourable exercise of legislative power. There are certain restriction on the power of the
legislature to levy tax and these restrictions do not apply to levying of fees.
REFERENCES:
1. Bharat Agarwal, Difference between tax and fee and guidelines for drafting a fiscal
legislation, JRTI Journal.
2. Hugh Spritzer, Tax vs. Fee: A curious confusion, Gonzaga Law Review.
3. Divya Dua, Differentiating tax from fees through Supreme Court Judgments and
Constitutional Provisions, Lokniti.

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TAX AND FEE

According to the Merriam-Webster dictionary, a tax is usually sum of money imposed by

DISTINCTION BETWEEN TAX AND FEE:

S.No CRITERIA TAX FEE

3 A tax is a levy collected A fee is a levy collected to

4. Taxes may pay the salary A fee is assessed for an

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