Very Short Question Answer

Define tax. State any two canon of taxation.(2073)

Tax is defined 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 benefit conferred.

The two canons of taxation are as explained below:

  1. Canon of Equality: This canon states that tax must be levied according to tax paying capacity of the individuals.
  2. Canon of certainty: This canon states that the taxpayers should feel certainty regarding the time of payment, amount to be paid, method of payment, the place of payment and the authority to whom the tax is to be paid.
Write any two objectives of tax.(2074)

The two objectives of tax are as follows:

  1. To raise revenues to finance government expenses.
  2. To redistribute wealth for the common good.
Define tax. Enumerate three objectives of tax.(2075)

Tax is defined as a compulsory contribution from a person, firm or company to the government to defray the expenses incurred in the common interest of all, without reference to special benefit conferred.

The three objectives of tax are:

  1. To prevent concentration of wealth
  2. To redistributing wealth for the common good
  3. To boost up the economy
Explain canon of equity of taxation.(2075)

Canon of equity states that a good tax is that which is based on the principle of equality. This principle requires tax be levied according to tax paying capacity of the individuals.

Adam Smith states that every citizen should support the government, as nearly as possible, in proportion to his or her respective abilities, that is, in proportion to the revenue.

This principle states that the burden of taxation should be fair and just. Thus, rich people must be charged higher taxes than the poor. The higher the income higher the tax, lower the income lower the tax. Tax policy should not discriminate the persons with same income level.

Define tax. State any two objective of tax.

Tax is defined 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 benefit conferred.

The two objectives of tax are as follows:

  1. To raise revenues to finance government expenses.
  2. To redistribute wealth for the common good.
Briefly state any four objectives of tax.

The four objectives of tax are:

  1. To prevent concentration of wealth
  2. To redistributing wealth for the common
  3. To boost up the economy
  4. To reduce unemployment problem
Briefly mention the sources of government financing.

The government mobilizes the funds through different sources; mainly from debt and revenue. The debt may be internal and external while the revenue of the government comes from two sources tax and non-tax. Income tax, property tax, values added tax, excise duties, customs duties etc. fall under the head of tax revenue. The revenue like gifts, grants, revenue from public enterprises, administrative revenues such as registration fees, fines and penalties fall under the head of non-tax revenue.

Define indirect tax. State any two advantages of indirect tax.

 An indirect tax is a form of tax imposed on one person but partly or wholly paid by another. It is collected by mediators who transfer the taxes to the government and also perform functions associated with filing tax returns.

The following are the advantages of indirect tax:

  1. Indirect tax is more convenient as the taxpayer does not have to pay a lump sum amount for tax.
  2. There is mass participation as each and every person getting goods or services has to pay tax.
Briefly explain the ‘canon of certainty’.

This canon states that the taxpayers should feel certainty regarding the time of payment, amount to be paid, method of payment, the place of payment and the authority to whom the tax is to be paid. Every taxpayer must know the time of payment, manner and mode of payment, so that he may adjust his expenditures accordingly.

State the four canons of taxation outlined by Adam Smith.

The four canons of taxation outlined by Adam Smith are as follows:

  1. Canon of equality
  2. Canon of certainty
  3. Canon of convenience
  4. Canon of economy

Short Question Answer

Give the concept of ‘Canon of Equality’ with a suitable illustration. 2061 (C)

Canon of equality states that a good tax is that which is based on the principle of equality. This principle requires tax be levied according to tax paying capacity of the individuals. Adam Smith has defined this principle as follows

“The subject of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state.”

This principle states that the burden of taxation should be fair and just. Thus, rich people must be charged higher taxes than the poor. The higher the income higher the tax, lower the income lower the tax. Tax policy should not discriminate against persons with the same income level.

Write in short the objectives of tax. 2061 (F)

Tax is the major source of government revenue. The objectives of tax are:

  1. To raise more government revenue for financing government expenditure.
  2. To prevent concentration of wealth in a few hands through progressive tax system.
  3. To redistribute wealth for the common good to the whole community.
  4. To boost up the economy as tax serves as an instrument for promoting economic growth, stability and efficiency. 
  5. To remove regional disparities by providing tax exemption or concessions for industries established in backward areas.
Explain any two canons of taxation with appropriate examples. 2061 (F)

Any two canons of taxation have been explained below:

Canon of certainty: This canon states that the taxpayers should feel certainty regarding the time of payment, amount to be paid, method of payment, the place of payment and the authority to whom the tax is to be paid. This helps taxpayers to make adjustments in their expenditures accordingly. In the words of Adam Smith, “the tax which each individual is bound to pay ought to be certain and not arbitrary. The time of payment, the quantity to be paid, all ought to be clear and plain to the contributor and to every other person.” Thus, certainty creates confidence in the contributor of the tax.

Canon of convenience: Tax should be levied and collected in such a manner that it provides maximum convenience to the taxpayers. The public authorities should always keep this point in view that the taxpayers suffer the least inconvenience in payment of tax. For example, land revenue should be collected at the harvest time. The income tax from the salary class should be collected only when they get their salaries from their employers. To quote Adam Smith, “Every tax ought to be levied at the time or in the manner which is most likely to be convenient for the contributor to pay it.” This canon helps to reduce tax evasion to a great extent.

Define ‘Indirect Tax’. Give three examples of indirect tax. 2062 (C) 

An indirect tax is a form of tax imposed on one person but partly or wholly paid by another. It is collected by mediators who transfer the taxes to the government and also perform functions associated with filing tax returns. Hence, indirect tax can be shifted. In indirect tax, the impact and incidence of tax are on different persons. In other words, the person paying and bearing the tax is different. It is the tax on consumption or expenditures. Examples include VAT, excise duty, import and export duty, etc.

What are the different types of tax? Briefly explain with examples.

Tax can be of various types. On the basis of shifting of burden, it can be classified into two groups. They are direct tax and indirect tax.

Direct tax: A direct tax is a form of tax paid by a person on whom it is legally imposed. It is collected directly by the government from the person who bears the tax burden. Taxpayers need to file tax returns directly to the government. Therefore, direct tax cannot be shifted. It is the tax on income and property. Examples include income tax, property tax, vehicle tax, interest tax, expenditure tax, death tax, gift tax, etc.

Indirect tax: An indirect tax is a form of tax imposed on one person but partly or wholly paid by another. It is collected by mediators who transfer the taxes to the government and also perform functions associated with filing tax returns. Hence, indirect tax can be shifted. It is the tax on consumption or expenditures. Examples include VAT, excise duty, import and export duty, etc.

What do you mean by canon of economy? Write in brief with a suitable example. 2064 (Old) 

This principle states that the collection expenses of tax should be less than the amount of tax collected so that a surplus to public revenue is generated and the country will be benefited. The amount that goes from the taxpayers pocket should not differ greatly with the amount that actually goes to the government’s treasury. This principle also implies that a tax should interfere as little as possible with the productive activity and general efficiency of the community so that it may not create an adverse effect on production and employment. For example, the cost incurred by the government to collect house rent tax should be lower than the house rent tax collected by such means. 

Describe in short the canons of equity and elasticity in taxation.

Canon of equity:  Canon of equality states that a good tax is that which is based on the principle of equality. This principle requires tax be levied according to tax paying capacity of the individuals. This principle states that the burden of taxation should be fair and just. Thus, rich people must be charged higher taxes than the poor.

Canon of elasticity: This canon signifies that the taxes should be levied in such a way the amount to be collected can be increased or decreased with the least inconvenience from time to time. In other words, the government can easily change the tax rates as per the needs of the country. Instead of being rigid, tax rates should be made flexible to cope up with the changes in taxpayers’ income, properties and transactions.

Define the term tax. Explain its types with suitable examples. 2066

Tax can be defined as a levy or other type of financial charge or fee imposed by state or central government on legal entities or individuals. It is a compulsory levy from individuals, households and firms to central or local government. It may be levied on income, property and even at the time of purchasing a commodity. A taxpayer is not entitled to compel the government, while paying taxes, to give something to him in return of the amount he has paid.

On the basis of shifting of burden, tax can be classified into two broad categories: direct and indirect tax.

Direct tax: A direct tax is a form of tax paid by a person on whom it is legally imposed. It is collected directly by the government from the person who bears the tax burden. It is the tax on income and property. Examples include income tax, property tax, vehicle tax, interest tax, expenditure tax, death tax, gift tax, etc.

Indirect tax: An indirect tax is a form of tax imposed on one person but partly or wholly paid by another. It is collected by mediators who transfer the taxes to the government and also perform functions associated with filing tax returns. Hence, indirect tax can be shifted. It is the tax on consumption or expenditures. Examples include VAT, excise duty, import and export duty, etc.

Explain in short the canons of economy and neutrality in taxation. 2066

Canon of economy: This principle states that the collection expenses of tax should be less than the amount of tax collected so that a surplus to public revenue is generated and the country will be benefited. The amount that goes from the taxpayers pocket should not differ greatly with the amount that actually goes to the government’s treasury. For example, the cost incurred by the government to collect house rent tax should be lower than the house rent tax collected by such means.

Canon of neutrality: The tax system should not affect the production and distribution aspect of the nation rather it should facilitate them. The government should impose heavy taxes on harmful products and less tax or no tax on basic goods in such a way that the total tax revenue is not affected. The tax must not have any inflationary or deflationary effect on the economy.

Describe in brief the canon of diversity with appropriate example. 2067

The tax system should not totally depend on one source of revenue. It is risky for the government to depend on a single source. The government should levy various taxes instead of imposing a single tax. The burden of tax should be scattered among different kinds of people. The burden of paying tax should not be centralized on one group of people but it should be diversified in such a way that it ensures a smooth collection in different years. For example, the government should not rely on VAT only but also on other forms of tax such as excise duty or custom duty.

Describe briefly the importance of tax to the government. Also state the types of tax with suitable examples. 2068

Tax is a permanent instrument of collecting revenues for the government. It is a major source of revenue in both developing and developed countries. It has become an instrument of social and economic policy for the government. The importance of taxation to the government are as follows:

  1. It is a major resource to finance government expenditure.
  2. It helps to regulate the economy.
  3. It helps to prevent concentration of wealth in a few hands.
  4. It helps to redistribute wealth for the common good.
  5. It helps to boost up the economy.
  6. It helps to reduce unemployment.
  7. It helps to remove regional disparities.

On the basis of shifting of burden, tax can be classified into two broad categories: direct and indirect tax.

Direct tax: A direct tax is a form of tax paid by a person on whom it is legally imposed. It is collected directly by the government from the person who bears the tax burden. It is the tax on income and property. Examples include income tax, property tax, vehicle tax, interest tax, expenditure tax, death tax, gift tax, etc.

Indirect tax: An indirect tax is a form of tax imposed on one person but partly or wholly paid by another. It is collected by mediators who transfer the taxes to the government and also perform functions associated with filing tax returns. Hence, indirect tax can be shifted. It is the tax on consumption or expenditures. Examples include VAT, excise duty, import and export duty, etc.

Define ‘Tax’. Give three objectives of taxation. 2069

Tax can be defined as a levy or other type of financial charge or fee imposed by state or central government on legal entities or individuals. It is a compulsory levy from individuals, households and firms to central or local government. It may be levied on income, property and even at the time of purchasing a commodity. A taxpayer is not entitled to compel the government, while paying taxes, to give something to him in return of the amount he has paid. The three objectives of tax are:

  1. To raise more government revenue for financing government expenditure.
  2. To prevent concentration of wealth in a few hands through progressive tax system.
  3. To redistribute wealth for the common good to the whole community.

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