taxes types, methods & budgeting process section 4 MCQ Questions & Answers Detailed Explanation
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The following question based on Taxes Types, Methods & Budgeting Process topic of indian economy mcq
(a) Price elasticity of demand for it is high
(b) Price elasticity of demand for it is unity
(c) It must be an essential goods
(d) Price elasticity of demand for it is low
The correct answers to the above question in:
Answer: (a)
The price elasticity of demand for goods also depends on the proportion of the income the buyers spend on the goods.
Therefore, if the sales tax on a commodity is raised, but the revenue earned through its sale decrease sharply, the price elasticity of demand for the commodity would be high.
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Read more taxes types methods budgeting process Based Indian Economy Questions and Answers
Question : 1
Consider the following regarding India’s external debt:
- It is around 20% of GDP
- Sovereign Debt is less than 5% of GDP
- External Commercial Borrowings (ECB) has the highest share in India’s external debt
a) (iii) only
b) (i) & (iii) only
c) (i) & (ii) only
d) All of the above
Answer »Answer: (d)
As of June 2019, India’s external debt to GDP ratio stood at approximately 20%. And out of it, Sovereign debt (Govt. of India’s external debt) was around 3.5%.
Total India’s External Debt as of the end of June 2019 stood at $557 billion (20% of GDP) and out of it around more than 200 billion USD was external commercial borrowing (ECB).
Question : 2
Consider the following statements regarding "Tax Avoidance" and "General Anti Avoidance Rules (GAAR)":
- Tax avoidance is legal
- Tax avoidance is illegal
- GAAR targets business transactions that are entered into with the objective of avoiding tax
- GAAR target transactions entered into for tax evasion and tax avoidance both
a) (i) & (iv) only
b) (ii) & (iii) only
c) (i) & (iii) only
d) (ii) & (iv) only
Answer »Answer: (c)
The tax liability of a person can be reduced through Tax Planning, Tax avoidance and Tax Evasion. Although in common parlance these terms are used interchangeably, these terms are technically different from each other and should not be used interchangeably. Although the objective of all three is to reduce the taxes, the method adopted by them is different.
Tax Planning is the art of reducing the tax liability of a person by making use of the various provisions of law. The government in many cases provides various deductions and exemptions which can be used by a person to reduce his tax liability. Tax planning is 100% legal and all taxpayers are advised to make use of the same to reduce their tax burden.
Tax Avoidance basically means the use of the loopholes in the tax law to one's own advantage to reduce the tax burden.
Although tax avoidance is legal, it is not advisable as the taxpayer has defeated the intention of the lawmaker and used this to his own advantage. Although both tax planning and tax avoidance are legal ways to reduce tax, there is only a thin line of difference between tax planning and tax avoidance. In tax planning, a taxpayer is doing what the government wants him to do whereas, in tax avoidance, a taxpayer is doing something which the government did not expect the taxpayer to do.
Tax evasion involves breaking the law, not paying one's taxes where the law clearly states that they must be paid. Tax evasion is the method by which a person illegally reduces his tax burden by either deflating their income or inflating their expenses.
General Anti Avoidance Rules (GAAR) refer to the rules that target any transaction or business arrangement that is entered into with the objective of avoiding tax.
Tax avoidance is legal; but now, large scale revenue loss is occurring due to aggressive tax planning by corporate using avoidance opportunities. Governments in many countries are introducing anti-avoidance rules to check this revenue loss from excessive avoidance. GAAR has come into effect from 1st April 2017.
After the implementation of GAAR, the Income-tax Department will have powers to deny tax benefits if a transaction was carried out exclusively for the purpose of avoiding tax.
For example, if an entity is set up in Mauritius with the sole intention of claiming exemption from the capital gains tax, the tax authorities will have the right to deny the claim for the exemption provided under the India-Mauritius tax treaty.
Question : 3
Consider the following statements regarding the "Public Finance Management System (PFMS)":
- It comes under the office of Controller General of Accounts, Ministry of Finance
- It comes under the Department of Expenditure, Ministry of Finance
- It is an end to end online solution for processing payments, reconciliation and reporting of central schemes
- It tracks fund utilization up to the last mile for central schemes
a) (ii) & (iii) only
b) (i), (iii) & (iv) only
c) (i) & (iii) only
d) (ii), (iii) & (iv) only
Answer »Answer: (b)
The Public Finance Management System (PFMS) comes under the office of Controller General of Accounts, Ministry of Finance. It is an end-to-end online solution for processing payments, tracking, monitoring, accounting, reconciliation and reporting.
The Centre has integrated the treasuries of almost all states into the PFMS to track fund utilization up to the last mile as well as transfer funds “just-in-time” for central schemes.
Integration of State treasuries has virtually wiped out the indefinite parking of central funds at the state level.
Question : 4
Consider the following statements regarding ‘Fiscal Consolidation’ policy:
- It is an effort by the government to bring down the fiscal deficit
- It is an effort to reduce public debt
- It is an effort to reduce the current account deficit
- It is an effort to raise revenues and bring down wasteful expenses
a) (i), (ii) & (iv) only
b) (iv) only
c) (i), (ii) & (iii) only
d) All of the above
Answer »Answer: (a)
Fiscal Consolidation policy is an effort by the Government to bring down the fiscal deficit.
It is an effort to reduce public debt, raise revenues and bring down wasteful expenses.
Question : 5
Which of the following should be considered for ‘Pigovian taxation’?
- Consumption of cigarettes
- Research for new technologies
- Burning of fossil fuels
- Restoration of lost cultural heritage
a) 1, 2 and 3
b) 1 and 3 only
c) 2, 3 and 4 only
d) 2 and 4 only
Answer »Answer: (b)
A Pigovian tax is applied to a market activity that is generating negative externalities (costs for somebody else) like cigarette consumption, burning of fossil fuel.
Question : 6
Which of the following statements are true regarding "fiscal stimulus":
- It is a strategy to boost the sluggish economy
- RBI pumps money into the economy
- Government reduces subsidies
- Public spending increases
a) (i), (ii), & (iv) only
b) (i), (iii) & (iv) only
c) (i) & (ii) only
d) (i) & (iv) only
Answer »Answer: (d)
A ‘stimulus’ is an attempt by policymakers to kickstart a sluggish economy through a package of measures.
In the case of fiscal stimulus, the Government increases its spending and or slashes tax rates to put more money in the hands of consumers.
A monetary stimulus will see the central bank expanding money supply or reducing the cost of money (interest rates), to spur consumer spending.
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taxes types, methods & budgeting process section 4
taxes types, methods & budgeting process section 5
taxes types, methods & budgeting process section 6
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