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#1 Which of the following statements correctly explains the term ‘Tax Shift’??Solution (a)
Tax shift or Tax swap is a change in taxation that eliminates or reduces one or several taxes and establishes or increases others while keeping the overall revenue the same. The term can refer to desired shifts, such as towards Pigovian taxes (typically sin taxes and ecotaxes) as well as (perceived or real) undesired shifts, such as a shift from multi-state corporations to small businesses and families.
#2 Which of the following are the correct examples of Pigovian Tax? 1. Tax on pollution 2. Tax on tobacco products 3. Tax on alcoholic drinks 4. Tax on Water supply. Select the code from following:?Solution (a)
- A Pigovian tax (also spelled Pigouvian tax ) is a tax levied on any market activity that generates negative externalities (costs not internalized in the market price).
- The tax is intended to correct an inefficient market outcome, and does so by being set equal to the social cost of the negative externalities.
- In the presence of negative externalities, the social cost of a market activity is not covered by the private cost of the activity.
- In such a case, the market outcome is not efficient and may lead to overconsumption of the product.
- Often-cited examples of such externalities are environmental pollution, and increased public healthcare costs associated with tobacco and sugary drink consumption.
- In the presence of positive externalities, i.e., public benefits from a market activity, those who receive the benefit do not pay for it and the market may under-supply the product.
- Similar logic suggests the creation of a Pigovian subsidy to make the users pay for the extra benefit and spur more production.
- An example sometimes cited is a subsidy for provision of flu vaccine
#3 In Indian Taxation system, the tax is rounded off to?Solution (b)
As per section 288A, total income computed in accordance with the provisions of the Income- tax Law, shall be rounded off to the nearest multiple of ten. Following points should be kept in mind while rounding off the total income:
First any part of rupee consisting of any paisa should be ignored.
After ignoring paisa, if such amount is not in multiples of ten, and last figure in that amount is five or more, the amount shall be increased to the next higher amount which is in multiple of ten and if the last figure is less than five, the amount shall be reduced to the next lower amount which is in multiple of ten and the amount so rounded off shall be deemed to be the total income of the taxpayer.
Illustration for better understanding
If the taxable income of Mr. Keshav is Rs. 2,52,844.99, then first paisa shall be ignored, i.e., 0.9 9 paisa shall be ignored) and the remaining amount of Rs. 2,52,844 shall be rounded off to Rs. 2,52,840 (since last figure is less than five). If the total income is Rs. 2,52,845 or Rs. 2,52,846.01, then it shall be rounded off to Rs. 2,52,850 (since the last figure is five or above).
#4 Which of the following statements are correct regarding ‘Ways and Means Advances’? 1. It is an overdraft facility provided by RBI to the government. 2. Government issues securities to get a temporary loan from National Banks. 3. WMA is used to meet temporary mismatches between receipts and payments. Select the code from following:?Solution (c)
Ways and Means Advances
The Reserve Bank of India gives temporary loan facilities to the centre and state governments as a banker to government. This temporary loan facility is called Ways and Means Advances (WMA).
The WMA scheme for the Central Government was introduced on April 1, 1997, after putting an end to the four-decade old system of adhoc (temporary) Treasury Bills to finance the Central Government deficit. The WMA scheme was designed to meet temporary mismatches in the receipts and payments of the government. This facility can be availed by the government if it needs immediate cash from the RBI. The WMA is to be vacated after 90 days. The limits for WMA are mutually decided by the RBI and the Government of India.
When the WMA limit is crossed the government takes recourse to overdrafts, which are not allowed beyond 10 consecutive working days. The interest rate on overdrafts would be 2 percent more than the repo rate. The minimum balance required to be maintained by the Government of India with the Reserve Bank of India will not be less than Rs.100 crore on Fridays, on the date of closure of Government of India’s financial year and on June 30, the date of closure of the annual accounts of the RBI, and not less than Rs.10 crore on other days.
#5 The proposals of Government to levy new taxes or to modify the existing taxes is done through?Solution (b)
A Finance Bill is a Money Bill as defined in Article 110 of the Constitution.
Description: The proposals of the government for levy of new taxes, modification of the existing tax structure or continuance of the existing tax structure beyond the period approved by Parliament are submitted to Parliament through this bill.
The Finance Bill is accompanied by a Memorandum containing explanations of the provisions included in it. The Finance Bill can be introduced only in Lok Sabha.
However, the Rajya Sabha can recommend amendments in the Bill. The bill has to be passed by the Parliament within 75 days of its introduction.