GST & Tax — Set 3

Correct Answer: D. Reduce the tax paid on purchases from the tax payable on sales

• **Reduce the tax paid on purchases from the tax payable on sales** = Input Tax Credit allows a business to deduct tax paid on inputs from the tax owed on its output. • **Prevents double taxation** — ITC ensures that the same product is not taxed twice at different stages of the production or distribution chain. • 💡 Wrong-option analysis: Avoid paying any tax at all: ITC reduces tax liability, it does not eliminate it; Take a loan from the bank: ITC has no connection to bank loans; Claim a refund on income tax: ITC is related to GST, not income tax refunds.

Correct Answer: C. July 1, 2017

• **July 1, 2017** = GST was launched in India at midnight on 1 July 2017 in a historic special session of Parliament. • **Replaced complex indirect tax web** — It replaced over a dozen central and state indirect taxes including excise duty, service tax, and VAT. • 💡 Wrong-option analysis: August 15, 2017: August 15 is Independence Day; GST was not launched on this date; April 1, 2017: GST was not launched on 1 April 2017, despite being the start of the financial year; January 1, 2017: January 2017 preceded the GST launch by six months.

Correct Answer: D. Taxes on inter-state trade or commerce

• **Taxes on inter-state trade or commerce** = Under Article 269, taxes on the inter-state sale of goods (other than GST) are levied by the Union but assigned to states. • **Article 269A inserted for IGST** — A new Article 269A was inserted specifically to handle the levy and sharing of IGST on inter-state trade. • 💡 Wrong-option analysis: Income Tax: income tax is a direct tax levied and retained by the Centre under Article 270; GST on intra-state trade: intra-state GST is shared between Centre (CGST) and State (SGST) under different articles; Taxes on the sale of newspapers: this is a minor specific tax, not the main subject of Article 269.

Correct Answer: B. Google Tax

• **Google Tax** = The Equalisation Levy, introduced in 2016, is popularly called the 'Google Tax' as it targets digital advertising revenues of foreign companies. • **Introduced in 2016 at 6%** — It was levied at 6% on payments made to foreign digital advertising platforms with no permanent establishment in India. • 💡 Wrong-option analysis: Carbon Tax: a carbon tax is levied on carbon emissions, not digital advertising; Estate Duty: estate duty is a tax on inherited property, abolished in India in 1985; Wealth Tax: wealth tax was levied on net wealth and was abolished in India in 2015.

Correct Answer: B. A tax based on a percentage of the value of the item

• **A tax based on a percentage of the value of the item** = Ad valorem is a Latin phrase meaning 'according to value', applied as a percentage of the price. • **Most GST and customs duties are ad valorem** — Most GST rates and customs duties are calculated as a fixed percentage of the transaction value. • 💡 Wrong-option analysis: A tax based on the height of a building: this would be a specific physical measure, not ad valorem; A fixed tax of Rs. 10 per liter: this is a specific tax based on quantity, not value; A tax based on the weight of the product: this is a specific tax based on weight, not an ad valorem tax.

Correct Answer: D. Section 8 non-profit company

• **Section 8 non-profit company** = GSTN was originally incorporated as a Section 8 (not-for-profit) private limited company. • **Later converted to fully govt-owned** — The government later decided to convert GSTN into a fully government-owned entity by acquiring private shareholding. • 💡 Wrong-option analysis: Private commercial bank: GSTN is not a bank; Statutory corporation: GSTN was not established by a statute; it was incorporated under the Companies Act; Fully government owned body: GSTN was originally a Section 8 non-profit with private shareholding, before the government took full ownership.

Correct Answer: D. Responsiveness of tax revenue to changes in GDP

• **Responsiveness of tax revenue to changes in GDP** = Tax buoyancy measures how much tax revenue increases in response to a rise in GDP. • **Buoyancy greater than 1 means faster growth** — A buoyancy greater than 1 indicates that tax revenue is growing faster than the overall economy. • 💡 Wrong-option analysis: Decrease in tax collection during boom: tax buoyancy is about responsiveness to GDP growth, not a decrease; Illegal shifting of tax burden: this describes tax evasion or shifting, not buoyancy; Process of printing new currency: currency printing is monetary policy, not related to tax buoyancy.

Correct Answer: A. Competition Commission of India (CCI)

• **Competition Commission of India (CCI)** = The CCI took over the anti-profiteering functions of the National Anti-profiteering Authority (NAA) in late 2022. • **NAA ensured GST benefits passed on** — NAA was established to ensure businesses pass on the benefit of reduced GST rates to consumers through lower prices. • 💡 Wrong-option analysis: Enforcement Directorate: the ED investigates financial crimes, not GST anti-profiteering; NITI Aayog: NITI Aayog is a policy think tank and has no role in GST anti-profiteering; Finance Commission: it recommends Centre-State revenue sharing, not GST anti-profiteering.

Correct Answer: A. Foreign currency conversions

• **Foreign currency conversions** = The Tobin Tax is a proposed tax on all spot conversions of one currency into another. • **Proposed by James Tobin** — Economist James Tobin proposed it to reduce short-term speculative financial transactions in currency markets. • 💡 Wrong-option analysis: Agricultural income: agricultural income tax is a state subject and is not related to the Tobin Tax; Real estate deals: taxes on real estate deals are a different category; Inherited property: taxes on inherited property are estate or inheritance duties, not the Tobin Tax.

Correct Answer: A. Corporate Tax

• **Corporate Tax** = Corporate Tax is a direct tax levied on the net income or profit of companies. • **Company pays and bears the burden** — The company that earns the profit is directly responsible for paying the tax to the government. • 💡 Wrong-option analysis: Entertainment Tax: entertainment tax was an indirect state-level tax, now subsumed into GST; Sales Tax: sales tax was an indirect tax replaced by VAT and later GST; Octroi: octroi was a local indirect tax on goods entering a municipality.