GST & Tax — Set 2

Correct Answer: D. Income Tax

Income Tax is a direct tax because the liability to pay and the actual burden fall on the same person. Indirect taxes like GST and Customs Duty are shifted from the seller to the consumer. Direct taxes are generally progressive, meaning they increase with income levels.

Correct Answer: B. One-third

The Central Government holds a one-third weightage of the total votes cast in the GST Council. The state governments together hold the remaining two-thirds weightage. Decisions require a three-fourths majority of the weighted votes of the members present and voting.

Correct Answer: B. 5 years

The Central Government originally promised to compensate states for any revenue loss for a period of 5 years. This was intended to encourage states to adopt the GST regime without fear of fiscal deficit. The period started from July 1, 2017, and ended in June 2022.

Correct Answer: A. Basic Customs Duty

Basic Customs Duty is still levied on imports and has not been merged into the GST system. However, Additional Duties of Customs (CVD) and Special Additional Duty (SAD) were replaced by IGST. This helps in regulating international trade and protecting domestic industries.

Correct Answer: D. Goods

GSTN stands for Goods and Services Tax Network, which is the IT backbone of the GST system. It provides a common portal for registration, filing returns, and tax payments. It handles massive amounts of data to ensure transparency and prevent tax evasion.

Correct Answer: C. Relationship between tax rates and tax revenue

The Laffer Curve illustrates that there is an optimal tax rate that maximizes total government revenue. If tax rates are too high, they can actually discourage work and reduce total revenue. It is a fundamental concept used to argue for moderate taxation policies.

Correct Answer: C. Rs. 40 Lakhs

For most normal category states, the threshold for mandatory GST registration for goods is an aggregate turnover of Rs. 40 Lakhs. For service providers, the limit generally remains at Rs. 20 Lakhs. Smaller businesses below this limit can opt for voluntary registration.

Correct Answer: A. Small taxpayers with limited turnover

The Composition Scheme is a simple and easy scheme for small taxpayers to reduce compliance burden. It allows them to pay a fixed percentage of their turnover as tax and file simplified returns. However, they cannot claim input tax credit or issue tax invoices.

Correct Answer: D. It places a higher burden on low-income earners

A regressive tax takes a larger percentage of income from low-income earners than from high-income earners. Most indirect taxes like GST are considered regressive in nature because everyone pays the same amount regardless of income. To mitigate this, essential items are often taxed at lower rates.

Correct Answer: A. Kelkar Task Force

The Kelkar Task Force on Indirect Taxes first suggested a comprehensive GST based on the VAT principle in 2003. They argued it would integrate the national market and boost economic growth. It took over a decade of negotiations before it was finally implemented.