[Mission 2022] QUIZ – 2022: INSIGHTS STATIC QUIZ, 16 March 2022 – Economy – INSIGHTSIAS

Solution: b)

Non-tax revenue receipts:

This includes all money earned by the government from sources other than taxes. In India they are:

(i) Profits and dividends which the government gets from its public sector undertakings (PSUs).

(ii) Interests received by the government out of all loans forwarded by it, be it inside the country (i.e., internal lending) or outside the country (i.e., external lending). It means this income might be in both domestic and foreign currencies.

(iii) Fiscal services also generate incomes for the government, i.e., currency printing, stamp printing, coinage and medals minting, etc.

(iv) General Services also earn money for the government as the power distribution, irrigation, banking, insurance, community services, etc.

(v) Fees, Penalties and Fines received by the government.

(vi) Grants which the governments receive— it is always external in the case of the Central Government and internal in the case of state governments.

Solution: a)

A cess imposed by the central government is a tax on tax, levied by the government for a specific purpose. Generally, cess is expected to be levied till the time the government gets enough money for that purpose.

Surcharge is a charge on any tax, charged on the tax already paid. As the name suggests, surcharge is an additional charge or tax. The main surcharges are that on personal income tax (on high income slabs and on super rich) and on corporate income tax.

Another major feature of cess like surcharges is that the Centre need not share it with states.

The proceeds collected from a surcharge and a cess levied by the union form part of the Consolidated Fund of India.

Solution: a)

Revenue Expenditure is expenditure incurred for purposes other than the creation of physical or financial assets of the central government. It relates to those expenses incurred for the normal functioning of the government departments and various services, interest payments on debt incurred by the government, and grants given to state governments and other parties (even though some of the grants may be meant for creation of assets).

Solution: b)

In macroeconomics and finance, a transfer payment is a redistribution of income and wealth by means of the government making a payment, without goods or services being received in return.

They are the receipts which the residents of a country get for ‘free’, without having to provide any goods or services in return.

They consist of gifts, remittances and grants.

They could be given by the government or by private citizens living abroad.

Solution: a)

Methods of Taxation

There are three methods of taxation prevalent in economies.

Progressive taxation

This method has increasing rates of tax for increasing value or volume on which the tax is being imposed.

Indian income tax is a typical example of it. The idea here is less tax on the people who earn less and higher tax on the people who earn more.

Regressive taxation

This is just opposite to the progressive method having decreasing rates of tax for increasing value or volume on which the tax is being imposed.

As a provision of promotion, some sectors might be imposed with regressive taxes. As for example, to promote the growth and development of small-scale industries, India at one time had regressive excise duty on their productions—with increasing slabs of volume they produced, the burden of tax used to go on decreasing.

Proportional taxation

Such taxes have fixed rates for every level of income or production, they are neutral from the poor or rich point of view or from the point of view of the levels of production. Usually, this is not used by the economies as an independent method of taxation.