taxes types, methods & budgeting process section 1 MCQ Questions & Answers Detailed Explanation

Answer: (b)

When Central govt was planning to introduce GST, States were worried that after the implementation of GST the tax revenue of States may fall and they will not have the freedom under GST to impose extra taxes or increase the tax rate.

So, Central government calculated the tax revenue growth of State's indirect taxes from 2012-13 to 2013-14, 2013-14 to 2014-15 and 2014-15 to 2015-16,

i.e. for three years and the result was on average growth of 14%. So, Govt. of India promised states and UTs that if after implementation of GST the States/UTs Indirect Revenue growth will be less than 14% annually from 2015-16 (base year) onwards, then the Govt. of India will compensate states/UTs.

Accordingly, The GST Compensation to States Act 2017 (GoI Act) was enacted. The GST council recommends on what items (mostly luxury and demerit goods) cess will be imposed and at what rate. The compensation cess will be levied for five years. In 2019-20, the Central government has compensated more than Rs. 1 lakh crore to states.

Govt of India levies and collects the Cess and keeps it in “GST Compensation Fund” in Public Account of India (because it is not Govt. of India’s money and it belongs to States) and then it transfers to States/UTs.

Answer: (d)

When government postpones its fiscal deficit target or when the fiscal deficit increases then the interest rate in the economy goes up because the government borrows more (demand-supply concept).

When the interest rate in the economy goes up bond prices come down and the return/yield on bonds goes up.

Answer: (c)

Tax buoyancy = ${% \text"Change in Tax Revenue"}/{%\text"Change in Nominal GDP"}$

If nominal GDP growth is 12% and Tax revenue growth in a particular year is 15% then tax buoyancy will be 15%/12% = 1.25. It tells what is the growth in tax revenue with every percentage change in GDP.

If tax buoyancy is greater than one then it is good for the economy.

Answer: (c)

KK Surcharge is the additional percentage of tax which domestic tax players need to pay when declaring undisclosed income by paying tax at 30%. The KKS above the tax is 7.5%.

Answer: (a)

Pump priming is the action taken to stimulate an economy, usually during a recessionary period, through government spending and tax reductions.

The term pump-priming is derived from the operation of older pumps - a suction valve had to be primed with water so that the pump would function properly.

Answer: (c)