CDS (II) 2020 GK Q1: As per the Budget Estimates of 2019–20, the following are

Q: What is the answer to CDS (II) 2020 GK Q1?

B. Correct — B, 1, 3, 2, 4. Corporation tax first, Goods and Services Tax second, personal income tax third, Union excise duties last. The Budget Estimates presented in July 2019 put corporation tax at Rs 7,66,000 crore, GST at Rs 6,63,343 crore, taxes on income other than corporation tax at Rs 5,69,000 crore and Union excise duties at Rs 3,00,000 crore, out of a gross tax revenue of Rs 24,61,195 crore. Notice what the phrase 'as a percentage of GDP' does and does not change. Every one of the four is divided by the same nominal GDP for the same year, so the denominator cancels and the rupee ranking is the percentage ranking — roughly 3.6, 3.1, 2.7 and 1.4 per cent of a GDP the Budget assumed would grow 12 per cent over 2018-19. You do not need the GDP figure at all; you only need to know which head raises the most money.

CDS (II) 2020 General Knowledge · Question 1 of 120

Question text verified against the official CDS question paper.

As per the Budget Estimates of 2019–20, the following are some of the important sources of tax receipts for the Union Government: 1. Corporation Tax 2. Taxes on Income other than Corporation Tax 3. Goods and Services Tax 4. Union Excise Duties Which one of the following is the correct descending order of the foresaid tax receipts as a percentage of GDP?

(a)1, 2, 3, 4
(b)1, 3, 2, 4
(c)3, 2, 1, 4
(d)2, 4, 3, 1

Answer

Why

Correct — B, 1, 3, 2, 4. Corporation tax first, Goods and Services Tax second, personal income tax third, Union excise duties last. The Budget Estimates presented in July 2019 put corporation tax at Rs 7,66,000 crore, GST at Rs 6,63,343 crore, taxes on income other than corporation tax at Rs 5,69,000 crore and Union excise duties at Rs 3,00,000 crore, out of a gross tax revenue of Rs 24,61,195 crore. Notice what the phrase 'as a percentage of GDP' does and does not change. Every one of the four is divided by the same nominal GDP for the same year, so the denominator cancels and the rupee ranking is the percentage ranking — roughly 3.6, 3.1, 2.7 and 1.4 per cent of a GDP the Budget assumed would grow 12 per cent over 2018-19. You do not need the GDP figure at all; you only need to know which head raises the most money.

Why the others are wrong

(a)1, 2, 3, 4 — Keeps corporation tax at the top, which is right, but slots personal income tax above GST. In these estimates GST at Rs 6,63,343 crore was comfortably ahead of the Rs 5,69,000 crore expected from taxes on income other than corporation tax.
(c)3, 2, 1, 4 — Puts GST first and corporation tax third. Corporation tax was the single largest source in the Budget Estimates, about Rs 1 lakh crore ahead of GST.
(d)2, 4, 3, 1 — Almost exactly inverted. It ranks Union excise duties second and corporation tax last, when excise was the smallest of the four at Rs 3,00,000 crore and corporation tax the largest.

Concept

The Union Government's gross tax revenue comes from a small number of large heads. Corporation tax and taxes on income other than corporation tax are the two direct taxes, levied on company profits and on personal incomes. GST, customs and Union excise duties are the indirect taxes, levied on transactions. Since July 2017, GST has absorbed most of the old excise and service tax base, leaving Union excise duties to fall mainly on petrol, diesel and tobacco, which sit outside GST. Expressing each head as a share of GDP is simply a way of comparing years of very different price levels.

The item looks like a memory test and is really a size test. Three of the four options can be knocked out by two facts that a reader of the Budget summary would carry: corporation tax is the biggest single head, and Union excise duties are the smallest of these four now that GST has taken the base. That leaves only the GST-versus-personal-income-tax order to decide, and GST was the larger of the two in 2019-20. One printed slip is worth noticing and does not affect the answer: the stem reads 'the foresaid tax receipts' where the paper meant 'aforesaid'. A second point worth carrying is that this ordering is not a law of nature. Within the very same year, the revised estimates moved GST to Rs 6,12,327 crore and corporation tax down to Rs 6,10,500 crore after the corporate tax rate cut of September 2019, so GST actually finished the year marginally ahead.

Key facts

Budget Estimates 2019-20: corporation tax Rs 7,66,000 crore; GST Rs 6,63,343 crore; taxes on income other than corporation tax Rs 5,69,000 crore; Union excise duties Rs 3,00,000 crore.
Gross tax revenue was budgeted at Rs 24,61,195 crore, with customs adding Rs 1,55,904 crore.
The Budget assumed nominal GDP would grow 12 per cent in 2019-20, so all four ratios share one denominator and the order of the rupee amounts is the order of the ratios.
By the revised estimates for the same year, gross tax revenue had fallen to Rs 21,63,423 crore and GST at Rs 6,12,327 crore had edged past corporation tax at Rs 6,10,500 crore.
Gross tax revenue is not what the Centre keeps: Rs 8,09,133 crore was budgeted for devolution to the States, though only Rs 6,56,046 crore was actually devolved.

Budget Estimates 2019-20 — the four heads the question ranks

1. Corporation Tax→Rs 7,66,000 crore — the largest single head, about 3.6 per cent of GDP.

3. Goods and Services Tax→Rs 6,63,343 crore — the Centre's share of GST, about 3.1 per cent of GDP.

2. Taxes on Income other than Corporation Tax→Rs 5,69,000 crore — personal income tax, about 2.7 per cent of GDP.

4. Union Excise Duties→Rs 3,00,000 crore — now mostly petrol, diesel and tobacco, about 1.4 per cent of GDP.

Reading the table downward gives 1, 3, 2, 4. The GDP denominator is the same for all four, so it never changes the order.

Study next

How to read Budget at a Glance and the Receipts Budget, especially receipts stated as a share of GDPDirect versus indirect taxes, and how the balance between them moved after GST began in July 2017The September 2019 corporate tax rate cut and what it did to collections in the same financial yearGross tax revenue against the Centre's net tax revenue, and devolution to States on the Finance Commission's formulaCesses and surcharges, which stay outside the divisible pool and so change what devolution is calculated on

Common traps

Treating 'as a percentage of GDP' as though it could reorder the heads. It cannot, because the same GDP divides all of them.
Assuming GST must be the largest head because it is the most discussed one. In 2019-20's Budget Estimates corporation tax was larger.
Reading 'taxes on income other than corporation tax' as something exotic. It is ordinary personal income tax.

Usually as a ranking of the Centre's tax heads for a named Budget year, or as a single question asking which head is the largest source of revenue.

Related PYQs

UPSC_2017_GS1_Q942017Open & attempt →

Consider the following statements: 1. Tax revenue as a percent of GDP of India has steadily increased in the last decade. 2. Fiscal deficit as a percent of GDP of India has steadily increased in the last decade. Which of the statements given above is/are correct?

(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

Answer(d) Neither 1 nor 2

The same habit of expressing Union finances as a share of GDP. That item tests whether the tax-to-GDP ratio has moved in one direction over a decade; this one tests whether you can rank the individual tax heads within a single year on the same measure.

Practice

practice — not a real PYQ
In the Union Budget, the head 'Taxes on Income other than Corporation Tax' refers to which one of the following?
- (a)Customs duty
- (b)Personal income tax
- (c)Securities transaction tax
- (d)The States' share of the Goods and Services Tax
Answer(b) Personal income tax — the Budget separates tax on company profits, shown as corporation tax, from tax on all other incomes, which is personal income tax.
practice — not a real PYQ
Since the introduction of the Goods and Services Tax, Union excise duties are levied mainly on which one of the following groups of goods?
- (a)Cement and steel
- (b)Petroleum products and tobacco
- (c)Textiles and readymade garments
- (d)Electronic goods and vehicles
Answer(b) Petroleum products and tobacco — these were kept outside or partly outside GST, which is why Union excise duties survive as a separate head.