Test: Goods and Services Tax (GST) - UGC NET MCQ

• Assertion Evaluation: The assertion is true. The primary objective of GST implementation was indeed to address and eliminate the double taxation issue that plagued the previous tax structure.
• Reason Evaluation: The reason is also true. GST facilitates the offsetting of taxes paid at earlier stages in the supply chain, which directly combats the problem of tax cascading.
• Explanation Relationship: The reason correctly explains the assertion because the mechanism of offsetting taxes under GST is what effectively addresses the double taxation issue mentioned in the assertion.

Statement 1 is correct because GST does simplify the taxation process by consolidating various indirect taxes into a single tax, which can help to reduce tax evasion and streamline tax collection for businesses.

Statement 2 is incorrect. While VAT is collected at each stage of production, it does not apply only at the final point of sale. Additionally, VAT typically covers a broader range of products than GST, which is often more limited in scope.

Therefore, the correct answer is Option A: 1 Only.

One of the main criticisms of the Goods and Services Tax (GST) is that it disproportionately affects individuals in lower and middle-income brackets, making it a regressive tax. This means that while everyone pays the same percentage of tax on goods and services, lower-income individuals spend a larger portion of their income on these taxed items compared to wealthier individuals. As a result, GST can exacerbate income inequality and deepen social divides. To counteract this issue, some countries implement exemptions or lower rates on essential goods, such as food and healthcare, to lessen the tax burden on those with lower incomes.

The primary purpose of the Goods and Services Tax (GST) is to impose a value-added tax on goods and services sold for domestic consumption. This tax is collected from consumers, but it is the businesses that collect it and remit it to the government. GST simplifies the tax system by creating a single tax applied uniformly across a country, making it easier to administer and reducing tax evasion. Interestingly, many countries implement GST as a means to boost compliance and streamline their overall tax structure.

The Goods and Services Tax (GST) is characterized by its structure that consolidates multiple taxes into a single point of collection, which is typically paid by the end consumer. Unlike traditional taxes, which are collected at various stages in the production and distribution processes, GST simplifies the system by ensuring that the tax is only collected once, at the point of sale. This approach can help streamline compliance for businesses and reduce administrative burdens. A notable fact is that this system is now adopted in around 140 countries, each implementing it in different ways to suit their economic.

• The Assertion is correct: Provinces such as New Brunswick and Ontario have indeed adopted the HST after Prince Edward Island.
• The Reason is also correct: HST aims to simplify the tax process and improve compliance.
• However, the Reason does not directly explain the Assertion, as the adoption of HST by other provinces is influenced by various factors, not solely the simplification and compliance objectives.

Statement 1 is correct because the implementation of GST (Goods and Services Tax) in India indeed aimed to simplify the tax system by replacing multiple indirect taxes (like VAT, service tax, and others) with a single tax structure, making it easier for businesses and consumers to navigate.

Statement 2 is incorrect. Under the previous tax system, taxes were levied at multiple stages of the production and distribution process, leading to cascading tax effects. This meant that consumers ultimately faced higher prices due to taxes applied at each stage, not just at the point of sale.

Thus, the only correct statement is 1, making the correct answer Option A.

• The Assertion is true because the GST does impose a higher relative burden on lower-income households.
• The Reason is also true as GST is applied uniformly across goods and services, meaning that it does not take into account the income levels of consumers.
• The Reason correctly explains the Assertion as it clarifies why lower-income households are more adversely affected by GST.

A dual GST framework is characterized by the simultaneous application of both federal GST and local sales tax. This means that consumers see separate charges for each tax on their invoices, unlike a unified system where the federal government collects all taxes and then distributes them to the states. For example, in Canada, the federal GST is charged at 5%, while individual provinces may add their own sales taxes, leading to a more complex tax structure. This system aims to give provinces greater control over their tax revenues.

• The Assertion is correct: HST does indeed unify federal and provincial sales taxes into a single tax system.
• The Reason is also correct: Prince Edward Island was the first province to implement the HST in 2013.
• Furthermore, the Reason is the correct explanation of the Assertion because it provides about the onset of HST implementation, illustrating how it began the trend among provinces.