- A) Excise Duty An indirect tax levied on the manufacture of goods within the country. This definition is correct as per the traditional understanding of Excise Duty before the introduction of GST. - B) VAT (Value Added Tax) VAT is a consumption tax placed on a product whenever value is added at each stage of the supply chain, from production to the point of sale. The tax is ultimately paid by the final consumer. Sales tax on inter-state sales in India was historically Central Sales Tax (CST), which was a distinct tax, not a Value Added Tax. While GST (which replaced VAT and CST) is a form of value-added tax, the statement specifically linking sales tax on inter-state sale to VAT is incorrect. VAT applied to intra-state sales before GST, and it taxed the value addition, not just the total sale value like CST did.
Rise in the price level Indirect taxes are levied on the production, sale, or consumption of goods and services. These taxes are typically passed on to the consumer in the form of higher prices. Therefore, a high reliance on indirect taxes contributes to inflation. (Correct) 2. Higher taxation burden on the rich Indirect taxes are generally regressive. This means they constitute a larger proportion of the income of poorer households than richer households because poorer households spend a larger proportion of their income on goods and services subjected to these taxes. Direct taxes (like income tax) are typically progressive (higher burden on the rich). Thus, a high share of indirect taxes means a relatively lower burden on the rich compared to a system relying more on progressive direct taxes. (Incorrect) 3. Higher taxation burden on the poor As explained above, indirect taxes are regressive, placing a disproportionately higher burden on lower-income groups relative to their income. (Correct) 4. Fall in tax revenues A high ratio of indirect taxes does not automatically lead to a fall in total tax revenues. The total revenue depends on the overall tax base, rates, and compliance. It primarily affects the distribution of the tax burden and the composition of tax revenue. (Incorrect) 347. Which of the following pairs is INCORRECTLY matched?
Asked in GPSC Prelims CSP 2 2021 · Topic: Fiscal Policy & Revenue (Taxation System in India: Direct, Indirect taxes, and Tax Reforms (including GST))
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Answer: B. VAT – Sales tax on inter-state sale is called value added tax
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