Government and Taxes Online Test 10th Social Science Lesson 18 Questions in English

Tax is levied by government for the development of the state’s economy. The revenue of the government depends upon direct and indirect taxes.

Direct taxes are levied on income of the persons and the indirect taxes are levied on goods and services by which the government mobilises its “financial resources”.

In India, the three levels of governments, namely, union, state and local, have been carrying out various functions for the benefit of people and society at large.

Defence: This is an essential security function to protect our nation from our enemies. We know that we have three services, namely, army, navy and air force. The Union government is responsible for creating and maintaining defence forces.

The Union government creates laws and administrative system and conducts elections to these two legislature institutions. Similarly, the state governments conduct elections to local bodies within the state.

Foreign policy: In today’s world, we need to maintain friendly relationships with all the other countries in the world. India is committed to world peace. We should also maintain cordial economic relationships through exports and imports, sending and receiving investments and labour.

The role of government and development policies are into divided into seven categories for easy understanding. 1. Defence 2. Foreign policy 3. Conduct of periodic elections 4. Law and order 5. Public administration and provision of public goods 6. Redistribution of income and poverty alleviation 7. Regulate the economy

To settle disputes between union and state government, the Union government has a vibrant judicial system consisting of courts at the national, state and lower levels and state governments take the responsibility for administering the police force in respective states.

The Union government, through the Reserve Bank of India, controls money supply and controls the interest rate, inflation and foreign exchange rate. The main objective is to remove too much of fluctuation in these rates.

The Union government, through the Reserve Bank of India, controls money supply and controls the interest rate, inflation and foreign exchange rate. The Union also controls the economy through various other agencies such as Securities Exchange Board of India and Competition Commission of India.

Governments collect various taxes to finance the various activities mentioned earlier. The taxes are collected in a way that the high-income people can bring in more tax revenue to the government than the poor. Thus, collecting taxes and spending for the poor is how the government redistributes income and introduces measures to reduce poverty.

Taxation is a means by which governments finance their expenditure by imposing charges on citizens and corporate entities. The main purpose of taxation is to accumulate funds for the functioning of the government machinery.

The origin of the word "tax" is from "taxation," which means an estimate.

Tax has come into forefront on account of the new concept of “welfare state”. Modern governments do not confine themselves to law and order only. The importance of public finance (tax) has vastly increased in recent years.

Prof. Seligman defined a tax 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.”

The levying of taxes aims to raise revenue to fund governance or to alter prices in order to affect demand. A government's ability to raise taxes is called its fiscal capacity.

In India, Income Tax was introduced for the first time in 1860.

In India, Income Tax was introduced by Sir James Wilson in order to meet the losses sustained by the Government on account of the Mutiny of 1857.

When expenditures exceed tax revenue, a government accumulates debt. A portion of taxes may be used to service past debts. Governments also use taxes to fund welfare and public services.

According to the proponents of the theory of money creation, taxes are not needed for government revenue, as long as the government in question is able to issue fiat money.

There are some characteristics of tax system that economists think should be followed while designing a tax system. These characteristics are called as canons of taxation.

From Adam Smith, many economists have given lists of canons of taxation. It is important to recall those common among them for discussion here. 1. Canon of certainty 2. Canon of equity 3. Canons of Economy and Convenience 4. Canons of Productivity and Elasticity.

Since tax is a compulsory payment, all economists agree that equity is the cardinal principle in designing the tax system. The equity principal says that the rich should pay more tax revenue to government than the poor, because rich has more ability than the poor to pay the tax.

Canon of Certainty – Government should announce in advance the tax system so that every tax payer will be able to calculate how much tax amount one may have to pay during a year to the government.

If the tax is simple, then the cost of collecting taxes (tax payer cost + tax collector cost) will be very low. Further, tax should be collected from a person at the time he gets enough money to pay the tax. This is called canon of convenience. A convenient tax reduces the cost of collecting tax.

J.S. Mill defines a direct tax as “one which is demanded from the very persons who it is intended or desired should pay it.” Some direct taxes are income tax, wealth tax and corporation tax.

A tax imposed on an individual or organisation, which is paid directly, is a direct tax. The burden of a direct tax cannot be shifted to others.

Wealth tax is charged on the benefits derived from property ownership. The same property will be taxed every year on its current market value.

In India taxes are collected by all the three tiers of government. There are taxes that can be easily collected by the Union government.

In India almost all the direct taxes are collected by the Union governments. Taxes on goods and services are collected by both Union and state governments. The taxes on properties are collected by local governments.

In India we collect more tax revenue through indirect taxes than through direct taxes. The major indirect taxes in India are customs duty and GST. poor still pay more through Indirect taxes. Therefore, many argue we should reduce the indirect taxes and increase the collection through direct taxes.

We announce the tax system once in a year in the annual budget. It is very rarely breached by announcing mid-year tax changes. Therefore, Indian tax system adheres to canon of certainty more than anything else.

This tax is levied on companies that exist as separate entities from their shareholders. It is charged on royalties, interest gains from sale of capital assets located in India and fees for a technical services and dividends. Foreign companies are taxed on income that arises or is deemed to arise in India.

Government should choose the taxes that can get enough tax revenue to it. In other words, it should choose a few taxes that can fetch more tax revenue, instead of lots of taxes and each one of them getting a little tax revenue. This is canon of productivity.

Tax is paid by the people out their incomes. Therefore, the tax system should be designed in such a way that the people automatically pay more tax revenue if their incomes grow. This is called canon of elasticity.

If the Income of the Indian company is less than 50 crores, then the corporate tax for that company is 25%, for foreign company its 40%.

If the Income of the Indian company is more than 50 crores, then the corporate tax for that company is 30%, for foreign company its 40%.

Stamp duty is a tax that is paid on official documents like marriage registration or documents related to a property and in some contractual agreements.

An excise tax is any duty on manufactured goods levied at the movement of manufacture, rather than at sale. Excise is typically imposed in addition to an indirect tax such as a sales tax.

Entertainment tax is a duty that is charged by the government on any source of entertainment provided. This tax can be charged on movie tickets, tickets to amusement parks, exhibitions and even sports events.

The goods and service tax (GST) is one of the indirect taxes. The GST was passed in Parliament on 29 March 2017.

Goods and Service tax (GST) act came into effect on 1 July 2017. The motto is one nation, one market, one tax.

Goods and service tax is also a “one-point tax” unlike value-added tax (VAT), which was a multipoint tax.

France was the first country to implement GST in 1954 and many other European countries introduced GST in 1970-80.

State Goods and Service Tax (SGST): Intra state (within the state) VAT/sales tax, purchase tax, entertainment tax, luxury tax, lottery tax and state surcharge and cesses.

Tax levied on goods and service in a fixed portion is known as proportionate taxes. All tax payers contribute the same proportion of their incomes. In this method, the rate of taxation is the same regardless of the size of income.

Central Goods and Service Tax (CGST): Intra state (within the state) Central Excise Duty, service tax, countervailing duty, additional duty of customs, surcharge, education and secondary/higher secondary cess.

Progressive tax rate is one in which the rate of taxation increases (multiplier) as the tax base increases (multiplicand). The amount of tax payable is calculated by multiplying the tax base with the tax rate.

There are four major GST rates: 5%, 12%, 18% and 28%. Almost all the necessities of life like vegetables and food grains are exempted from this tax.

Regressive Taxes implies that higher the rate of tax lower the income groups than in the case of higher income groups. It is a very opposite of progressive taxation.

Black money is funds earned on the black market on which income and other taxes have not been paid. The unaccounted money that is concealed from the tax administrator is called black money.

Several sources of black money are identified as causes. They are 1. Shortage of goods 2. Licensing proceeding 3. Contribution of the industrial sector 4. Smuggling 5. Tax Structure

Smuggling is one of the major sources of black money. Bringing goods like precious metals like gold and silver, textiles and electronics goods by evading the authorities is Smuggling.

Licensing proceeding is firmly believed that the system of controls permits, quotes and licences are associated with maldistribution of commodities in short supply, which results in the generation of black money.

Tax structure: When the tax rate is high, more black money is generated.

Tax evasion is an activity commonly associated with the informal economy. Tax evasion is the illegal evasion of taxes by individuals, corporations and trusts.

Tax evasion activities included • Underreporting income • Inflating deductions or expenses • Hiding money • Hiding interest in offshore accounts.

Tax evasion resulting in black money prevents the resource mobilisation efforts of the Union government. Shortage of funds distorts implementation of developmental plans and forces the government to resort to deficit financing in case public expenditure is inelastic.

Tax evasion and black money encourage the concentration of economic power in the hands of undeserving groups in the country, which, in turn, is a threatening to the economy in its way. Evasion of tax consumes time and energy of tax administration to disentangle the intricate manipulations of tax dodgers

If a person wilfully commits the act of tax evasion, he may face felony charges. Tax evasion penalties include imprisonment of up to five years and high amount as fines.

If a person wilfully commits the act of tax evasion, he may face felony charges. The defendant may also be ordered to pay for the costs of prosecution. Other tax evasion penalties include community service, probation and restitution depending on the circumstances of the case.

The income received from production and supply of goods and services of public enterprises and revenue from administrative activities is payment. Payments from nontax sources other than tax income is known as payments.

Taxation generates social welfare. Social welfare is generated due to higher taxes on certain undesirable products like alcoholic products.

Taxation enables the government to mobilise a substantial amount of revenue. The tax revenue is generated by imposing direct taxes such as personal income tax and corporate tax and indirect taxes such as customs duty, excise duty, etc.

Taxation encourages exports and restricts imports, Generally, developing countries and even the developed countries do not impose taxes on export items.

Taxation can be used as an instrument for controlling inflation. Through taxation the government can control inflation by reducing the tax on the commodities.

Taxation follows the principle of equity. The direct taxes are progressive in nature. Also, certain indirect taxes, such as taxes on luxury goods, is also progressive in nature.

The role of taxation in developing economics is as follows. 1. Resource mobilisation 2. Reduction in equalities of income 3. Social welfare 4. Foreign exchange 5. Regional development 6. Control of inflation.

Fee is a voluntary payment. On the other-hand fee is not paid if the person do not want to get the service. Fee payer can get direct benefit for paying fee.

Income Tax is a tax paid by individuals and businesses based on earned and unearned income.

The moto of Goods and Service tax (GST) is one nation, one market, one tax.