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CS Executive · Tax Laws and Practice · Concept of Indirect Taxes at a Glance

Which of the following is a typical characteristic of indirect taxes such as GST when compared with income tax?

Indirect taxes like GST are generally regressive in effect. They are charged on consumption at the same rate regardless of the buyer's income, so they take a larger proportion of a low-income person's earnings than of a high-income person's.

  1. AThey are generally regressive in effect because the same tax on a purchase takes a larger share of a low-income buyer's incomeCorrect
  2. BThey are levied on the net income of the taxpayer after allowing exemptions
  3. CThey are levied only once a year after the end of the financial year
  4. DThey cannot be collected by a person other than the one who bears the burden

Explanation

Indirect taxes apply to consumption irrespective of income, so the burden as a share of income is higher for low-income consumers, making them regressive in effect. Option B describes income tax. Option D is wrong because indirect taxes are collected by suppliers while the consumer bears them.

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