Fiscal Policy and Taxation

It is deflation.
At the time of deflation, purchasing power of people is reduced. Hence, at that time the supply of money in the hands of public must be increased like increase in old age pension, increase in unemployment compensation etc. Thus, people will demand more as money supply increases. This will boost the economy.

It is progressive tax.
When there is inflationary pressure due to increase in income and there is a need to contract it, the progressive tax comes to the rescue and contracts the surplus purchasing power from the economy. When the country is faced with falling income, the burden of tax automatically lessens. As the graduated rates apply on income automatically, the state has not to make any efforts on its own.

It is not included in public finance.
Attracting foreign direct investment is not included in public finance. It is included in international policy, as it deals with foreign countries.

It is a precaution that is not to be taken in use of deficit financing.
In the deficit financing, there is extra purchasing power in the hands of people as there is issue of currency. If the tax rates are decreased, it will leave even more purchasing power. Hence, tax rate is not to be decreased at the time of deficit financing so that the prices do not increase further.

It is concerned with earning profit by government by issuing currency.
Seigniorage is the profit earned by the government by issuing currency. It is the profit earned on the difference between face value of currency and its production cost. For instance, if the cost of production of a ten rupee coin is 50 paisa and its face value is Rs. 10, then a profit of Rs. 9.50 is earned on it.

It is not an anti-social act.
The indulging in luxuries by a person is not an anti-social act. The rich persons who have excess money can enjoy luxuries like travelling in expensive cars, going abroad etc. Just they have to pay the taxes on it, and indulging in luxuries is allowed by law.

It is the biggest ill-effect of deficit financing.
There is inflationary pressure at the time of deficit financing that makes the rich richer and the poor poorer. The fix wage earners are badly affected as their wages are not increased and their standard of living goes down. Thus, the gap between the rich and the poor widens, and thus there is increase in inequalities that is the biggest ill-effect of deficit financing because it is an injustice for an economy.

It is not the policy adopted at the time of deflation.
At the time of deflation, there is already a decline in demand, and less purchasing power. If the government increases taxes, it will leave less money and thus less purchasing power in the hands of people. Hence, the demand will decrease further. So, this policy is not adopted at the time of deflation.

It is not an expansionary fiscal policy.
When the debt is borrowed from public, supply of money will be transferred from the hands of public to the government. Hence, the funds or cash in the hands of public will be decreased. Thus, it is not an expansionary fiscal policy.

It does not help in containing inflation.
The non-developmental expenses such as on luxury of ministers, frequent foreign visits of ministers etc, do not produce anything, but increase the money supply without any increase in the productivity of goods and services. Hence, the prices will rise, as people have more purchasing power.

It is a discretionary fiscal policy.
The discretionary fiscal policy is adopted when the government intervenes in it to make some changes. If the tax rates are changed, it is beyond the existing fiscal policy. For instance, the reduction in tax rates on income of people will lead to increase in consumption level.

It is regressive tax.
In the progressive tax, the tax rate increases with the increase in income. In regressive tax, the tax rate decreases with the increase in income. Hence, the regressive tax is opposite of progressive tax.

It is income tax.
The rate of income tax increases with the increase in income in India. Hence, the poor have to pay no income tax and the rich have to pay high rate of tax. Hence, it is equitable in nature in India.

It decreases the gap between haves and have-nots.
When the policy of progressive taxation is followed, the rich have to pay higher rates of tax and the poor have to pay low rates of taxes. The rich have the capacity to pay high rates of tax, because even after paying high rate of tax they are left with sufficient income. But if more income is withdrawn from the rich and spent for welfare of the poor, it can decrease the gap between haves and have-nots to some extent.

It is professional tax.The professional tax is the tax paid for practicing any profession like practicing by chartered accountants doctors. The incidence of professional tax is not on two different persons, but on one person as the person who practices the profession has to pay this tax from out of the income earned from his or her profession.

It is match box.
The match box is an essential item, which is to be used by rich as well poor people. The match box is used to lit the fire. As the poor people have already less money, they take paying tax as a burden. The rich people have more money and as such they do not feel burden even if tax on match box increases. So, tax on match-box is unjust in nature for the poor people.

This statement is true about income tax. The income tax is progressive in nature in India, as the rate of income tax increases with the increase in income. The poor have to pay no tax and the rich have to pay more tax.

It is shifted. The value added tax is paid on the value added at each stage in goods and services from the production to retail stage. For instance, the wheat is converted into flour, which is the value added in the wheat. The person who adds the value by converting it into flour pays the tax, but finally charges it to the person to whom the flour is sold. Hence, its burden is shifted.

It is excise duty.The excise duty is levied heavily on products, which are harmful for health such as alcohol, tobacco, liquor etc. Heavy duty is charged on production of such harmful products so that its prices increase and people are discouraged to consume them.

It is sales tax.
The sales tax is to be paid at the time of purchase of goods and is included in the price of goods. For surviving at least a person will purchase the essentials items like wheat. Hence, he has to pay sales tax on wheat purchased. Hence, it is not necessary that a person must come under taxable capacity to pay sales tax.

It is an example of transfer payments.
The disability payment is the money given by the government to the person who is unable to work because of the disability. Transfer payment is the money given by the government to its citizens for social welfare. The disability payment is also given as part of social welfare, hence it is an example of transfer payment.

It is when manufacturer uses the cigarettes for his own consumption.
When the manufacturer uses the cigarettes for his own consumption, he has to pay the excise duty to the government. He can shift the burden of cigarettes to another person only if cigarettes are sold. As the manufacturer is using the cigarettes for his own consumption, the impact and incidence of the tax will fall on one person that is the manufacturer.

It is Income Tax.
For paying income tax, a person gets nothing in return at the time of paying tax. As income tax is not charged on goods and services, the person gets nothing in return of paying income tax.

It is Municipal Tax.The municipal tax is imposed in every city on the property owned by every person. The owner of property has to pay this tax and it is levied by the Municipal Corporation of the city. As it is levied on property owned by a person, nothing can be purchased in return of Municipal Tax.

Imposing higher taxes on consumer goods is not a method to achieve desirable level of price.
The consumer goods are the goods, which are purchased by the average consumer like clothing, food, automobiles etc. If higher tax is imposed on consumer goods, average man has to spend a large portion of his income in the taxes and he will be left with very little money. Hence, it is not desirable to put higher taxes on consumer goods.

It restricts the concentration of wealth in fewer hands.
When high tax is imposed on luxury items (which are purchased mainly by the rich), it restricts the concentration of wealth in fewer hands. As the rich can easily pay the higher tax, the revenue is taken from the pockets of the rich and is used for the welfare of the poor.

It is a contractory fiscal policy.
When the public debt borrowed from public is redeemed or repaid back to public, the revenue in the hands of government will decrease. Thus, that policy by which the money, funds or revenue in the hands of government decreases is contractory fiscal policy.

It is Income tax.
The income tax is deducted from the income of a person. The person knows how much tax is deducted from his or her income and is paid as lump sum. Hence, the income tax paid by a person is felt as a personal obligation.

It is regressive tax.
In the regressive tax, the rate of tax charged decreases with the increase in income. Hence, those who earn high income pay less tax as compared to the poor. Thus through this, the tax collected is the least in an economy, as the rich can pay high amount at higher rates, which is not possible in this system. The poor even at high rates are unable to pay high amount of tax as they earn less income.

It is not an example of transfer payments.
The railway fare is an example of commercial revenue for government, not an example of transfer payments. The government charges the fare for providing the service of travelling in train, but in transfer payment the government incurs the expenditure for social welfare.

It does not help in price stability.
When there is increase in non-developmental expenditure like increase in expenses on administration, payment of old age pension, expenses on ministers' security etc, it increases the supply of money. But these expenses do not help in increasing production; as such supply is less in comparison to demand and the prices move upward.

It is sales tax.
The sales tax cannot be evaded, as the sales tax is charged at the point of sale. When a person purchases the bare necessities such as wheat, sugar, match-box etc, he pays sales tax on all the items purchased in India. Hence, sales -tax cannot be evaded in India.

It is central excise duty.
The central excise duty is the excise duty charged on goods manufactured within India like match-box, television etc. These goods are manufactured throughout the year, and, therefore, central excise duty is charged continuously on these goods. Hence, it is a continuous source of revenue for central government throughout the year.

Income tax is the most elastic tax in nature.
The income tax is paid annually in India. At the time of emergency like war, floods etc, the rate of income tax can be increased quickly so that the government has adequate financial resource to meet the emergency. The rates of other types of taxes are not so easy to increase.

It is correct.
In India, taxes are imposed by central, state and local governments. The income tax is imposed by the central government, the Value Added Tax is imposed by the state government and municipal tax is imposed by the local self-government. Hence, it is essential that there is co-ordination between these three types of government so that there is no overlapping of tax in order to safeguard the interest of tax payer and the government.

It is a source of non-tax revenue for state government.
The state charges royalty for allowing to use the forests, mines owned by the state government. The royalty earned by the state government is the revenue earned not by imposing any tax. Hence, it is a source of non-tax revenue for state government.

It is income tax.
The income tax does not fall with equal weight on every class of people. The rich have to pay higher rates of income tax as compared to the poor in India. Hence, the weight of income tax falls with greater force on the rich class rather than on the middle class. The poor do not have to pay any income tax in India.

It is a source of non-tax revenue for central government.
The grant in aid from foreign countries is a financial assistance. This financial assistance is received by central government of India and it is not earned by imposing any tax. The tax is imposed on the citizens of India, but grant in aid is received from foreign countries.

It is the most diverse tax in India.
The Value Added tax is the tax, which is imposed on the value added in goods from production to retail stage. Moreover, this tax is imposed each time the value is added to the goods or services. Hence, it is the most diverse tax in India.

It is sales tax.
The sales tax is paid at the point of sale of a commodity. It is to be paid only if expenditure is incurred on the purchase of a commodity or goods otherwise not. Hence, sales tax cannot be paid, if no expenditure is incurred.

It is Value Added Tax.
The value added tax can be paid many times in the production of goods and services as it is paid each time the value is added to goods and services. For instance, in the manufacture of car, when the tyres are assembled the tax is charged; when steering is assembled, VAT is imposed for adding the value of steering. Same is the case with services.

The entertainment tax is not levied on playing table-tennis in own house.
If the person plays table-tennis in his own house, then entertainment tax is not to be paid as he or she is the owner of the table-tennis and hence entertainment tax is not to be paid. In fact, no tax is payable on it.

It is sales tax.
The sales tax is charged at the point of sale and purchase of a product. The retailer collects the tax from customer and later pays to the government.

It is value added tax.
The value added tax is to be charged on the value added in goods and services. It is difficult to estimate the demand for such products and services, as the prices of goods and services rise due to imposition of value added tax. Hence, it is very difficult to estimate the income from value added tax.

It is not an example of ad valorem tax.
The service tax is charged according to the price of service provided. It is taxed according to the price of the service provided, not according to its value. Hence, service tax is not an example of ad valorem tax.

The service tax is not imposed on television.
The service tax is charged or imposed on the services provided. The manufacture of television is the product manufactured and not the service provided to any customer. Hence, service tax is not charged on the manufacture of television.

This statement is not true about impact of tax.
The impact of tax can be shifted in case of indirect tax. For instance, the custom duty is to be paid to the government by the importer of commodity, but is shifted to the ultimate consumer as it is charged from the consumer by including in the price. Thus, the impact of tax can be shifted.

It is an example of non-ad valorem tax.
The non-ad valorem tax is charged not on the value, but on the other factors such as weight, price etc. The excise duty charged is the tax based on the cost of goods manufactured and not on its value. Hence, excise duty is an example of non-ad valorem tax.

It is not possible in custom duty, when the commodity is imported for own use by the importer.
If the commodity is imported for its own use by the importer, the burden of import duty cannot be passed to any other person and importer himself has to bear the burden of import duty. Another person will bear the burden of import duty only when he purchases the commodity imported.

This statement is not true about incidence of tax.
The incidence of tax refers to the ultimate burden of tax, not to the initial burden. For example, in sales tax, the impact of tax, i.e. the initial burden is on the seller who pays the sales tax to the government, but its incidence, i.e. the ultimate burden actually falls on the consumer or purchaser as sales tax is included in the price. Hence, the incidence of tax refers to the ultimate burden, not the initial burden.