taxes types, methods & budgeting process section 5 Practice Questions Answers Test with Solutions & More Shortcuts

Answer: (b)

Fiscal Deficit = Total Expenditure - Total Receipts except borrowing

= (Rev Exp. + Cap Exp.) - (Rev Rec. + Cap Rec. except borrowing)

= (Rev Exp. - Rev Rec.) + (Cap Exp. - Cap Rec. except borrowing)

= Revenue Deficit + Cap Exp. - Cap Rec. except borrowing

= Total borrowing

= Net borrowing at home + borrowing from RBI + Borrowing from abroad

Let us understand with an example.

Suppose, government's total expenditure = 17 lakh crore and receipts = 13 lakh crore

Then the government will have to borrow (17 lakh crore -13 lakh crore) 4 lakh crore to meet its expenditure. And this 4 lakh crore is called the fiscal deficit. That is why the fiscal deficit is also equal to the total borrowing i.e. 4 lakh crore.

But this 4 lakh crore which government borrows becomes part of capital receipt for the government and it must be included in capital receipts. So, in the actual sense government's total receipts will become 17 lakh crore (i.e. 13 lakh crore + 4 lakh crore borrowing).

Hence, in the above example:

Fiscal Deficit = Total expenditure - total receipts except borrowing

Otherwise, the difference between total expenditure and total receipts will always be zero.

Answer: (a)

‘Income distance’ is calculated as the difference between the per capita gross state domestic product (GSDP) of the state from that of the state with the highest per capita GSDP. This ensures that states with less income get a higher share in order to allow them to provide services comparable to those provided by the richer ones.

The XV FC used the per capita GSDP of Haryana as the reference for calculating the income distance, and has given it a weight of 45%, down from the 50% assigned by the XIV FC.

Answer: (c)

Revenue neutral tax rate means that the average GST rate should be such that the indirect tax revenues of the government after the implementation of GST should not be impacted as compared to before implementation of GST and that such GST rate was estimated by ex-Economic Advisor as on an average 16%.

That means if we keep the GST rate on an average of 16%, then whatever revenue collection was there before GST will not get impacted after GST.

Actually, Before GST, States indirect tax revenues were growing at 14%, so in GST we have tried to keep such a GST rate (16% revenue-neutral rate) so that even after GST, states revenue should continue to grow at 14% and if does not happen, then States will be compensated for the first five years.

Answer: (d)

Electronic Way Bill (E-Way Bill) is a document issued by a carrier giving details and instructions relating to the shipment of a consignment of goods like name of the consignor, consignee, the point of origin of the consignment, its destination, and route.

If the value of goods transported is more than worth Rs. 50,000/- then the e-way bill should be generated.

E-Way Bill is basically a compliance mechanism wherein by way of a digital interface the person causing the movement of goods uploads the relevant information prior to the commencement of movement of goods and generates an e-way bill on the GST portal.

An E-way bill is a mechanism to ensure that goods being transported comply with the GST Law and is an effective tool to track the movement of goods and check tax evasion. The E-Way bill under the GST regime replaces the Waybill (which was a physical document) which was required under the VAT regime for the movement of goods.

Answer: (b)

The term ‘Inverted Duty Structure’ refers to a situation where the rate of tax on inputs purchased is more than the rate of tax on outward supplies (or finished products).

This is the result of several tax rates of 0%, 5%, 12%, 18% and 28% in our GST structure.

For example, on "Paper" we have a 5% GST rate but on Books (a finished product) we have a 0% GST rate, so it is a classic case of inverted duty structure.

This creates a problem in claiming input tax credit as the supplier in the chain pays taxes on inputs purchased but he does not collect taxes from the outward supplies.