Exercises Questions with Answers

Evaluation

I. Choose the correct answer:

1. Taxes are________________ payment.

a. Voluntary

b. Compulsory

c. a & b

d. None of the above

[Answer: (b) Compulsory]

2. Minimum possible amount should be spent in the collection of taxes is

a. canon of equality

b. canon of certainity

c. canon of economy

d. canon of convenience

[Answer: (c) canon of economy]

3. This taxation is a very opposite of progressive taxation.

a. Degressive

b.  proportional

c. regressive

d. none

[Answer: (c) regressive]

4. Income tax is a

a. direct tax b.

b. indirect tax

c. a & b

d. degressive tax

[Answer: (a) direct tax]

5. Which tax is raised on provision of service.

a. Wealth

b. corporate

c. wealth

d. service

[Answer: (d) service]

II. Fill in the blanks:

1. Taxation is a term for when a taxing authority usually a government levies or imposes a tax.

2. Proportional Taxation is the method, where the rate of tax is same regardless size of the income.

3. Gift tax is paid to the Government by the recipient of gift depending on value of gift.

4. Direct tax burden cannot be shifted by tax payers.

5. Indirect tax is more elastic

III. Match the following:

1. Principle of taxation – Direct Tax

2. Estate tax – Goods and Service Tax

3. Excise Tax – Adam Smith

4. 01.07.2017 – Less elastic

5. Direct Tax – Indirect Tax

Answer:

1. Principle of taxation     - Adam Smith

2. Estate tax                      - Direct Tax

3. Excise Tax                    - Indirect Tax

4. 01.07.2017                    - Goods and Service Tax

5. Direct Tax                     - Less elastic

IV. Odd one out:

1. Which one of the following is not a indirect tax?

2. a) Service tax b) Value Added Tax (VAT) c) Estate duty   d) Excise duty

[Answer: (c) Estate duty]

V. Correct one  out :

1. Which one of the following tax is a direct tax?

a. Service tax

b. Wealth tax

c. Sales tax

d. Progressive tax

[Answer: (b) Wealth tax]

VI. Give short answer:

1. Define tax.

Answer: Taxes are defined as a compulsory contribution from a person to the government to defray the expenses incurred in the common interest of all without reference to special benefits conferred.

2. Why taxes are imposed?.

Answer: Everybody is obliged by law to pay taxes. Total Tax money goes to government exchequer. Appointed government decides that how are taxes being spent and how the budget is organized.

3. Write name of taxation types and draw its diagram.

Answer: Taxation Types:

There are four types of Taxation:

(i) Proportional Tax

(ii) Progressive Tax

(iii) Regressive Tax and

(iv) Degressive Tax 

4. Write any three importance of tax.

Answer:

(i) Health

(ii) Education

(iii) Governance

5. What are the types of tax? and explain its.

Answer:

In modern times taxes are classified into two types. There are:

(i) Direct Tax:

A Direct tax is the tax whose burden is directly borne by the person on whom it is imposed, (i.e), its burden cannot be shifted to others.

(ii) Indirect Tax:

When liability to pay a tax is on one person and the burden of that tax shifts on some other person, this type of tax is called an indirect tax.

6. Write short note on Gift Tax and Service Tax.

Answer:

Gift Tax:

Gift tax is paid to the Government by the recipient of gift depending on value of gift.

Service Tax:

Service tax is raised on provision of Service. This tax is collected from the service recipients and paid to the Central Government.

7. What is Goods and Service Tax?.

Answer:

(i) Goods and Services Tax is a kinds of tax imposed on sale, manufacturing and usage of goods and services.

(ii) This tax is applied on services and goods at a national level with a purpose of achieving overall economic growth.

8. Distinguish between the direct and indirect tax.

Answer:

Direct Tax

1. Burden cannot be shifted by taxpayers

2. Tax is imposed on personal income and corporate income.

3. Direct tax has no inflation pressure

4. The impact and incidence are the same in case of direct tax

5. Direct tax is less elastic

Indirect Tax

1. Easily be shifted to another person

2. Taxes imposed on various goods and services

3. This tax has inflation pressure

4. The impact and incidence are different in case of indirect tax

5. Indirect tax is more elastic

VII. Give brief answer:

1. Write briefly about the principles of taxation.

Answer: (i) Canon of Equality: The government should impose taxes in such a way that people have to pay according to their ability does not mean equal amount of tax but it means that the burden of a tax must be fair and just.

(ii) Canon of Certainity: Certainty creates confidence in the taxpayers cost of collection of taxes and increases economic welfare because it tends to avoid all economic waste.

(iii) Canon of Convenience: Taxes should be levied and collected in such a manner that provides a maximum of convenience to the taxpayers should always keep in view that the taxpayers suffer the least inconvenience in payment of the tax.

(iv) Canon of Economy: Minimum possible money should be spent in the collection of taxes. Collected amount should be deposited in the Government treasury.

2. Explain the taxation types.

Answer: Taxation Types:

There are four types of Taxation:

(i) Proportional Tax

(ii) Progressive Tax

(iii) Regressive Tax and

(iv) Degressive Tax      

(i) Proportional Taxation is a method, where the rate of tax is same regardless size of the income. The tax amount realized will vary in the same proportion as that of income. If tax rate is 5% on income, Mr. X getting an income of Rs.1000 will pay. Rs.50, Mr. B will be getting an income Rs.5,000 will pay tax of Rs.50. In short, proportional tax leaves the relative financial status of taxed persons unchanged.

(ii) Progressive Taxation is a method by which the rate of tax will also increase with the increase of income of the person a case of progressive taxation if a person with Rs.1000 income per annum pay a tax of 10% (i.e) Rs.100, a person with an income of Rs. 10,000 per annum pays a tax of 25% (i.e) Rs.2,500 and a person with income of 1 lakh per annum pay the tax of 50% that is Rs.50,000.

(iii) Regressive taxation: It implies that hire the rate of tax furrow income groups than in the case of higher income groups it is a very opposite to progressive taxation.

(iv) Digressive Taxes which are to mildly progressive, hence not very steep, so that high income earners do not make a due sacrifice on the basis of equity, are called digressive. In digressive taxation, a tax may be progressive up to a certain limit; after that it may be charged at a flat rate.

3. Explain the importance of tax.

Answer: Importance of Tax:

Taxes are crucial because governments collect this money and use it to finance under the following social projects.

1. Health:

(i) Without taxes, government contributions to the health sector would be impossible.

(ii) Taxes go to funding health services such as social healthcare, medical research, social security, etc.

2. Education:

(i) Education could be one of the most deserving recipients of tax money.

(ii) Governments put a lot of importance in the development of human capital and education is central in this development.

3. Governance :

(i) Governance is a crucial component in the smooth running of country affairs.

(ii) Poor governance would have far reaching ramifications on the entire country with a heavy toll on its economic growth.

(iii) Good governance ensures that the money collected is utilized in a manner that benefits citizens of the country.

4. Other important sectors are infrastructure development, transport, housing, etc.

(i) Apart from social projects, governments also use money collected from taxes to fund sectors that are crucial for the wellbeing of their citizens such as security, scientific research, environmental protection, etc.

(ii) Some of the money is also channeled to fund projects such as pensions, unemployment benefits, childcare, etc.

4. Explain the direct and indirect tax with examples.

Answer: Direct Tax:

(i) A Direct tax is the tax whose burden is directly borne by the person on whom it is imposed, i.e., its burden cannot be shifted to others.

(ii) It is deducted at source from the income of a person who is taxed.

(iii) Income tax is a direct tax because the person, whose income is taxed, is liable to pay the tax directly to the Government and bear the burden of the tax himself. Eg. Corporation tax, wealth tax gift tax estate dirty.

Indirect Tax:

(i) On the other hand when liability to pay a tax is on one person and the burden of that tax shifts on some other person, this type of tax is called an indirect tax.

(ii) Indirect Tax is a tax whose burden can be shifted to others.

(iii) For example: Service tax, Sales tax, Excise duty, Entertainment tax.

5. Why need for tax on people welfare? And explain it.

Answer: (i) The levying of taxes aims to raise revenue to fund governing or to alter prices in order to affect demand.

(ii) Some of these include expenditures on economic infrastructure like, transportation, sanitation, public safety, education, health-care systems, etc., military, scientific research, culture and the arts, public works, public insurance, etc. and the operation of government itself.

(iii) When expenditures exceed tax revenue, a government accumulates debt. A portion of taxes may be used to service past debts.

(iv) Governments also use taxes to fund welfare and public services. These services can include education systems, pensions for the elderly, unemployment benefits, and public transportation.

(v) Energy, water and waste management systems are also common public utilities.

(vi) The purpose of taxation is to maintain the stability of the currency, express public policy regarding the distribution of wealth, subsidizing certain industries or population groups or isolating the costs of certain benefits, such as highways or social security.

(iii) Canon of Convenience: Taxes should be levied and collected in such a manner that provides a maximum of convenience to the taxpayers should always keep in view that the taxpayers suffer the least inconvenience in payment of the tax.

(iv) Canon of Economy: Minimum possible money should be spent in the collection of taxes. Collected amount should be deposited in the Government treasury.

VIII. Activity and Project

1. Students are asked to go to the nearest departmental store and know about the Goods and Service tax (GST). Teacher and students are discussed about the GST.

2. Teacher asks the student to write an essay on what is tax? why we pay tax? And how does the Government use this tax for the welfare of the people.

IX. Life Skills :

1. Teacher and Students together discuss about the tax and their importance of development of country.