27 February 2023

Q1. An economy with low tax buoyancy is most likely to have

1. Greater tax collections with higher economic growth
2. Higher contribution of tax receipts to revenue receipts

Which of the above is/are correct?

1. 1 only
2. 2 only
3. Both 1 and 2
4. None 

Explanation:

• Tax buoyancy refers to the response of tax collections with higher economic growth. If tax buoyancy is good, and suppose economy grows rapidly, the tax collections of government will improve, for e.g. due to higher corporate tax. Statement 1: So, 1 is wrong as it refers to the opposite of the concept. Statement 2: It is wrong because buoyancy does not calculate the share of government receipts, i.e. the part of the non-tax revenue is not dealt by the concept of buoyancy. Q Source: Chapter on taxation: Ramesh Singh: Indian Economy

Q2. Voluntary Compliance Encouragement Scheme (VCES) is related to

1. Industrial emissions reporting
2. Tax dues 
3. Left Wing Extremism (LWE) surrenders policy
4. Mining licensing requirements

Explanation:

• It was noted that out of the nearly 17,00,000 registered assessees under the service tax, only about 7,00,000 assessees filed their service tax.The Service Tax VCES Scheme was a Voluntary Compliance Encouragement Scheme (VCES) that made it easier for businesses and individuals to declare their past due taxes.In the Finance Bill, 2013 (the Finance Bill”), to Government of India introduced the VCES scheme to encourage voluntary compliance with service tax regulation for those who had defaulted in past service tax payments. Q Source: Chapter on taxation: Ramesh Singh: Indian Economy

Q3. A progressive and a regressive taxation system is differentiated on the basis of

1. Potential for revenue collection
2. Equity in taxation 
3. Impact of taxation on industrial growth
4. Sustainability and robustness of taxation system

Explanation:

• A progressive tax is defined as a tax whose rate increases as the payer’s income increases. That is, individuals who earn high incomes have a greater proportion of their incomes taken to pay the tax. A regressive tax, on the other hand, is one whose rate increases as the payer’s income decreases. Particular taxes can also be classified as regressive or progressive. For e.g. consumption taxes are called as regressive, as rich spend less (and hence pay less taxes) on consumption goods as a proportion of their income. Q Source: Chapter on taxation: Ramesh Singh: Indian Economy

Q4. The Central Divisible Pool that accrues to states essentially consists of

1. Taxes collected by the Union government 
2. Statutory grants-in-aid
3. Capital expenditure of the Union government
4. All of the above

Explanation:

• Advising a formula to distribute the Union tax proceeds between Union and the States is the most important task of a Finance Commission, as the share of states in the net proceeds of Union taxes is the predominant channel of resource transfer from the Centre to states.Divisible Pool is that portion of gross tax revenue which is distributed between the Centre and the States. The divisible pool consists of all taxes, except surcharges and cess levied for specific purpose, net of collection charges. Option B: Grants-in-aid: Though, tax devolution (from the Divisible Pool) is the primary instrument to attend the issue of ‘horizontal imbalances’ of revenue accruing to the states, the grants-in-aid is a complimentary/secondary instrument regarding the same.As per the Article 275, the FC recommends the principles as well as the quantum of grants to those states which are in need of assistance. Q Source: Chapter on taxation: Ramesh Singh: Indian Economy

Q5. Consider the following about Commodities Transaction Tax (CTT).

1. It is applicable only to agricultural commodity futures.
2. It is collected by commodity exchanges on behalf of the Government of India.
3. It aims at encouraging speculation to promote price discovery.  Select the correct answer using the codes below.

1. 2 only 
2. 1 and 3 only
3. 3 only
4. 1 and 2 only

Explanation:

• Statement 1: It applies largely to non-agricultural commodity futures. Statement 2: Both Securities Transaction tax (STT) and CTT are collected by commodity exchange for ease of operations and efficiency. Statement 3: Like all financial transaction taxes, CTT aims at discouraging excessive speculation, which is detrimental to the market and to bring parity between securities market and commodities market such that there is no tax / regulatory arbitrage. This is because most institutional investors are not permitted to participate in the commodity derivatives market and the increased transaction cost further prohibits speculation. Q Source: Chapter on taxation: Ramesh Singh: Indian Economy

Q6. Consider the following statements about Equalization levy or Google tax:

1. It was introduced in India with the intention of taxing the digital transactions i.e. the income accruing to foreign e-commerce companies from India.
2. It is aimed at taxing (B2B) business to business transactions.

Which of the statements given above is/are correct?

1. 1 only
2. 2 only
3. Both 1 and 2
4. Neither 1 nor 2

Explanation:

• It was introduced in India with the intention of taxing the digital transactions i.e. the income accruing to foreign e-commerce companies from India.It is aimed at taxing (B2B) business to business transactions.It is levied at 6% on payments made to offshore platforms hosting online advertisements, it will be taxed only at 2% on e-commerce transactions.
• Equalisation Levy 2.0:
• The Equalisation Levy introduced by the Finance Act 2016, was charged at 6% on certain online advertising and related services.

Q7. Consider the following statements about taxes levied on imported goods

1. Countervailing duty is levied on goods that are sold below the prices in exporting country.
2. Anti-dumping duty is levied to counterbalance the subsidies provided by the government of exporting country.

Which of the above statements is/are correct?

1. 1 only
2. 2 only
3.  Both 1 and 2
4. Neither 1 nor 2

Explanation:

• Countervailing duty is levied on the imported goods to counterbalance (Countervail) the subsidies provided by the exporting country’s Government. Many of the governments provide subsides either during production or during exports to create price advantage for their products, this can be harmful to the products of the importing country, so Countervailing duties are levied to equalize the advantage.Anti-dumping Duties are levied on the goods that are either sold either, below the cost of production or below the prices in the home country. This is considered predatory as it tries to drive-out the products of importing country and create a monopoly. To prevent this from happening, anti-dumping duty is levied.

Q8. With reference to digital service tax (DST), consider the following statements:

1. India is the only country that imposes digital service tax.
2. In India 2% digital service tax is levied on trade and services by non-resident e-commerce operators.

Which of the statements given above is/are correct?

1. 1 only
2. 2 only
3. Both 1 and 2
4. Neither 1 nor 2

Explanation:

• Office of the United States Trade Representative (USTR) has said that the Digital services taxes adopted by India, Italy and Turkey discriminate against US companies and are inconsistent with international tax principles. Hence, statement 1 is not correct.Digital Services Taxes (DSTs) are the adopted taxes on revenues that certain companies generate from providing certain digital services. E.g. digital multinationals like Google, Amazon and Apple etc.The government had moved an amendment in the Finance Bill 2020-21 imposing a 2% digital service tax (DST) on trade and services by non-resident e-commerce operators with a turnover of over Rs. 2 crore. Hence, statement 2 is correct.

Q9. Consider the following statements.

1. Indian tax revenues remain largely dependent on direct tax collections.
2. Among the Revenue expenditure made by the Centre, the Interest payments constitute the lowest share.

Which of the above statements is/are correct?

1. 1 only
2. 2 only
3. Both 1 and 2
4. Neither 1 nor 2

Explanation:

Since an overwhelming majority of Indians do not pay income taxes,Indian tax revenues remain largely dependent on indirect tax collections, which include all taxes on spending (such as GST). These indirect taxes account for over two-thirds of total tax revenue in India. Hence, statement 1 is not correct. Over half of the government’s expenditure in India goes towards subsidies and other programmes. India also spends a substantial amount on interest payments. At 2017 levels of expenditure, 6% of GDP went towards interest payments. Higher proportion of interest payments are a direct outcome of the debt levels accumulated by the Indian government.  Hence, statement 2 is not correct.

Q10. With reference to taxation in India which of the following is/are correct about Taxpayer Charter?

1. The charter prescribes promises and expectations from taxpayers and revenue-collecting authorities.
2. It has been introduced as a part of the Constitutional Amendment that led to the introduction of Goods and Services Tax.

Select the correct answer using the code given below.

1. 1 only
2. 2 only
3. Both 1 and 2
4. Neither 1 nor 2

Explanation:

• The Finance Minister announced that a Taxpayer’s Charter shall be enshrined in the income-tax law. She proposed to amend the provisions of the Income-tax Act to mandate the Central Board of Direct Taxes (CBDT) to adopt a Taxpayers’ Charter. Hence statement 2 is not correct.
•  Accordingly, Taxpayers’ Charter was launched by Prime Minister Narendra Modi on August 13, 2020. It promises to maintain the privacy and confidentiality of income taxpayers and to reduce the cost of compliance with tax laws. The charter lists out the income tax department’s commitments to the income taxpayer as well as what the department expects from the taxpayers. According to PMO twitter handle, the Taxpayers’ Charter has come into effect from August 13, 2020.
•  The Taxpayer Charter explains what a taxpayer can expect from tax authorities and what is expected from a taxpayer. The aim of the Charter is that of nurturing the relationship between the Revenue departments and the community that they serve, a relationship of mutual trust and respect. Hence statement 1 is correct.
•  The charter is the result of an initiative first mentioned in the Budget Speech for 2010 and has evolved into its present form following consultation with involved stakeholders.
•  A taxpayer has the right: o to be treated with fairness and impartiality
•  to be treated as honest and tax compliant unless there is evidence to the contrary for certainty o for assistance and information from the Tax Departments to pay no more than the correct amount of tax not to be subject to retrospective taxation to minimise compliance costs to be advised and represented by any person on taxation matters o to appeal to privacy and confidentiality of information, authorities hold about a taxpayer to know what information authorities hold about taxpayer for the licit arrangement of your tax affairs that minimise the tax liability to request a payment plan to complain about service, behaviour and actions
•  In return, a taxpayer is expected
•  to be honest to be compliant, and cooperate when you deal with the Tax Departments to keep proper records in accordance with the law to file proper and complete tax documents and effect payments by the statutory due dates to inform the Tax Departments about changes in circumstances to know tax responsibilities and the consequences for noncompliance