UPSC Prelims 2011 · GS Paper I

Question 16: Economy and Social Development

Which one of the following is not a feature of "Value Added Tax" ?

aIt is a multi-point destination-based system of taxation

bIt is a tax levied on value addition at each stage of transaction in the production-distribution chain

cIt is a tax on the final consumption of goods or services and must ultimately be borne by the consumer

dIt is basically a subject of the Central Government and the State Governments are only a facilitator for its successful implementation

AnswerThe answer is (d).

VAT is a multi-point tax charged on the value added at each stage of production and distribution, with credit for tax already paid on inputs, so that in the end the consumer bears it. In India, sales tax on goods was a state matter, and states introduced VAT from April 2005 with the Centre's coordination. The statement that VAT is basically a Central subject with States only helping is therefore the one that is not a feature.

Why each option is right or wrong

(a) A feature: VAT is levied at several points and is destination-based.
(b) A feature: tax falls on value addition at each stage.
(c) A feature: the burden finally rests on the consumer.
(d) Not a feature, hence the answer: VAT on goods was a state subject, not a Central one.

Explanation: written by UPSC Grade, not by UPSC.

Practise this paper timedPrevious question Next question

Source: UPSC, Civil Services (Preliminary) Examination 2011, General Studies Paper I, Series A. The paper on upsc.gov.in.