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#1 Which of the following statements correctly explains ‘Ad Valorem’ tax??Solution (d)
Ad Valorem Tax
An ad valorem tax (Latin for “according to value”) is a tax whose amount is based on the value of a transaction or of property. It is typically imposed at the time of a transaction, as in the case of a sales tax or value-added tax (VAT). An ad valorem tax may also be imposed annually, as in the case of a real or personal property tax, or in connection with another significant event (e.g. inheritance tax, expatriation tax, or tariff). In some countries a stamp duty is imposed as an ad valorem tax.
#2 During British time, which of the following Viceroys introduced the system of budget in India??Solution (b)
First Indian Budget
The Budget was first introduced in India on 7th April, 1860 from East-India Company to British Crown . The first Indian Budget was presented by James Wilson on February 18, 1869. Mr Wilson was the Finance Member of the India Council that advised the Indian Viceroy. He was Scottish businessman, economist and Liberal politician. He founded The Economist and the Standard Chartered Bank.
The Viceroy during that time was Lord Caning
#3 Which of the following statements correctly explains the term Fiscal Stimulus??Solution (a)
- An increase in public spending or a reduction in the level of taxation that might be performed by a government in order to encourage and support economic growth.
- Most government bailout packages offered to various business types can be considered a form of fiscal stimulus.
- A ‘stimulus’ is an attempt by policymakers to kickstart a sluggish economy through a package of measures.
- A monetary stimulus will see the central bank expanding money supply or reducing the cost of money (interest rates), to spur consumer spending.
- A fiscal stimulus entails the Government spending more from its own coffers or slashing tax rates to put more money in the hands of consumers.
- Proponents of fiscal stimulus usually cite the legendary John Maynard Keynes to support their arguments.
- Keynes argued that even small direct interventions by the Government to prop up demand, can have a disproportionately high impact on economic growth due to the multiplier effect.
- When demand in an economy stays weak for long, businesses stop investing in new projects, unemployment rises, income shrinks and consumer confidence wanes.
- This prompts consumers to retreat further into their shells.
- But if the Government can step in with a fiscal stimulus, to deliver a small steroid shot to consumer spending, it revives business confidence, restarts projects, creates jobs and sets off a virtuous cycle of feel-good, demand and growth.
#4 Which of the following statements are correct regarding ‘Disposable Personal Income’? 1. It is the gross amount earned by a household 2. It is amount that households have for spending and saving after the deduction of taxes. 3. It determines the purchasing capacity of the household. Select the code from below:?Solution (b)
Disposable Personal Income (DPI)
Disposable income, also known as disposable personal income (DPI), is the amount of money that households have available for spending and saving after income taxes have been accounted for. Disposable personal income is often monitored as one of the many key economic indicators used to gauge the overall state of the economy.
For example, consider a family with a household income of Rs 100,000, and the family has an effective income tax rate of 25%. This household’s disposable income would then be Rs 75,000 (Rs 100,000 – Rs 25,000). Economists use DPI as a starting point to gauge households’ rates of savings and spending.
#5 Which of the following statements are NOT correct regarding IGST? 1. IGST stands for International Goods and Services Tax 2. It is levied on exports only 3. It is charged by the central Government. Select the code from below:?Solution (a)
Integrated Goods and Services Tax (IGST)
To determine whether Central Goods & Services Tax (CGST), State Goods & Services Tax (SGST) or Integrated Goods & Services Tax (IGST) will be applicable in a taxable transaction, it is important to first know if the transaction is an Intra State or an Inter-State supply.
- Intra-State supply of goods or services is when the location of the supplier and the place of supply i.e., location of the buyer are in the same state. In Intra-State transactions, a seller has to collect both CGST and SGST from the buyer. The CGST gets deposited with Central Government and SGST gets deposited with State Government.
- Inter-State supply of goods or services is when the location of the supplier and the place of supply are in different states. Also, in cases of export or import of goods or services or when the supply of goods or services is made to or by a SEZ unit, the transaction is assumed to be Inter-State. In an Inter-State transaction, a seller has to collect IGST from the buyer.
Under GST, IGST is a tax levied on all Inter-State supplies of goods and/or services and will be governed by the IGST Act. IGST will be applicable on any supply of goods and/or services in both cases of import into India and export from India.
Note : Under IGST,
• Exports would be zero-rated.
• Tax will be shared between the Central and State Government.
An example for IGST:
Consider that a businessman Rajesh from Maharashtra had sold goods to Anand from Gujarat worth Rs. 1,00,000. The GST rate is 18% comprised of 18% IGST. In such case, the dealer has to charge Rs. 18,000 as IGST. This IGST will go to the Centre.