Taxation — PPSC previous year questions

Corporation tax is a direct tax: it is levied on the profits of companies and its burden cannot be shifted to anyone else. Service tax, customs duty and excise duty are indirect taxes because they are levied on services or goods and their burden is passed on to the consumer through prices. Since 2017 service tax and most excise duties have been subsumed in GST, while customs duty remains a separate indirect tax.

Dividends from public sector enterprises are non-tax revenue of the government, like interest receipts, fees and the surplus transferred by the RBI. Income tax is a direct tax, while stamp duties and import (customs) duties are indirect taxes; all three form part of tax revenue.

Only statement 2 is correct: direct taxes such as income tax are progressive, meaning the rate rises with income. Statement 1 is wrong because in an indirect tax the burden is passed on, so the person who pays it to the government (the seller) and the person who finally bears it (the buyer) are different. Statement 3 is wrong because corporate tax is also a direct tax.

Corporation tax is a direct tax — it is levied on the profits of companies and paid by them directly — so pair III is incorrectly matched. Income tax is likewise a direct tax (pair I correct), while GST is an indirect tax whose burden is passed on to the consumer (pair II correct). So only III is wrong.

All four measures attack black money from different sides. The Lokpal and Lokayukta Act, 2013 sets up ombudsmen to act against corrupt public servants. The Benami Transactions (Prohibition) Amendment Act, 2016 allows benami property to be attached and confiscated. Tax relief on digital payments pushes transactions into traceable channels. The Prevention of Money Laundering Act, 2002 lets the Enforcement Directorate attach the proceeds of crime.

The GST (Compensation to States) Act, 2017 promised states compensation for revenue lost due to GST for five years (July 2017 to June 2022), assuming 14% yearly growth over 2015-16 revenue. The money came from a compensation cess on luxury and sin goods.

GST was introduced through the Constitution (101st Amendment) Act, 2016. It came into force on 1 July 2017. So statement 1 is correct. Amitabh Bachchan was appointed brand ambassador to promote GST in 2017, so statement 3 is correct. Statement 2 is wrong: France was the first country to introduce GST/VAT, in 1954, not Germany.

The Tobin tax was proposed by the Nobel laureate James Tobin in 1972. It is a small tax on spot conversions of one currency into another. It is meant to curb short-term speculative capital flows, called 'hot money', and to reduce exchange-rate volatility. It aims at cross-border currency speculation. It is not about share trading or luxury consumption. A related idea, the financial transaction tax, has been adopted in various forms by some countries.

When this was asked (2019), corporation tax on company profits was the largest single tax of the Union: about ₹6.6 lakh crore in 2018-19 against ₹4.7 lakh crore from personal income tax, with GST and excise next and customs well behind. Note the date: personal income tax first edged past corporation tax in the pandemic year 2020-21 and has stayed ahead since 2022-23 (about ₹10.4 lakh crore against ₹9.1 lakh crore in 2023-24), so for any year from 2022-23 onward the answer is income tax. Direct taxes together give a little over half of gross tax revenue.

The Revenue Neutral Rate is the single GST rate that keeps revenue unchanged. At this rate the Centre and States together collect as much as before. GST replaced excise, service tax, VAT and other taxes. So the switch causes no loss of revenue. The Arvind Subramanian committee (2015) put the RNR at about 15-15.5 per cent. It has nothing to do with a 50:50 split or with states getting no revenue.