Taxation and GST — Practice Questions
UPSC Prelims-pattern practice questions on taxation and GST with full explanations: the 101st Amendment, tax buoyancy, taxing powers and GST compensation.
Questions
These are original UPSC-pattern practice questions. Attempt each one before revealing the answer.
Which of the following Articles were inserted into the Constitution of India by the 101st Constitutional Amendment Act, 2016?
- Article 246A
- Article 269A
- Article 279A
Select the correct answer using the code given below.
Solution
All three: Article 246A (concurrent power over GST), Article 269A (IGST on inter-State supply) and Article 279A (GST Council). The amendment also inserted Article 366(12A), which defines GST.
Answer: D
“Tax buoyancy” refers to:
Solution
Buoyancy = % change in tax revenue ÷ % change in GDP, including discretionary policy changes. Option B is tax elasticity, which excludes them. Options C and D are the tax-to-GDP ratio and the composition of taxes.
Answer: A
Consider the following statements:
- Taxes on agricultural income are levied by the States.
- Corporation tax is a subject in the Union List.
- Surcharges levied by the Union under Article 271 form part of the divisible pool shared with States.
Which of the statements given above is/are correct?
Solution
Statement 1 is correct (State List Entry 46). Statement 2 is correct (Union List Entry 85). Statement 3 is incorrect: surcharges and cesses stay entirely with the Union and are excluded from the divisible pool under Article 270.
Answer: B
Consider the following statements about compensation to States under the GST (Compensation to States) Act, 2017:
- Revenue of States was assumed to grow at 14% per year.
- The base year for calculating the protected revenue was 2015-16.
- Compensation was guaranteed for a period of ten years.
- Compensation was financed through a compensation cess.
How many of the statements given above are correct?
Solution
Statements 1, 2 and 4 are correct. Statement 3 is wrong: compensation was guaranteed for five years, from July 2017 to 30 June 2022. So three statements are correct.
Answer: C
Which of the following taxes were subsumed into the Goods and Services Tax?
- Service tax
- Basic customs duty
- State value added tax
- Stamp duty
Select the correct answer using the code given below.
Solution
Service tax and State VAT were subsumed. Basic customs duty is still levied on imports; only the additional customs duties (CVD and SAD) were subsumed. Stamp duty remains a separate State levy outside GST.
Answer: A
What factors limit India’s tax-to-GDP ratio? Suggest measures to widen the tax base without raising rates.
Solution
Introduction: The tax-to-GDP ratio measures how much of national output the State mobilises as tax. A low ratio limits spending on infrastructure, health and education and pushes the Government towards borrowing.
Body:
- Structural limits: a large informal sector outside the tax net; agricultural income exempt from central income tax; a narrow personal income tax base relative to the population.
- Design limits: exemptions and deductions; GST exclusions such as petroleum products and electricity, which break the input-credit chain; frequent rate changes and classification disputes.
- Compliance limits: evasion, under-reporting and litigation backlogs.
- Measures to widen the base: data analytics using GST, e-invoicing and financial transaction data; formalisation through digital payments; phasing out exemptions in favour of lower uniform rates; simplified compliance for small taxpayers; faster dispute resolution; property tax reform at the local level.
Conclusion: India can raise revenue more through a wider base and better compliance than through higher rates, in line with the Laffer-curve insight that very high rates can reduce collections.