CAPF AC 2022 Q110: Indian Economy – Taxation

CAPF AC 2022, Paper I (General Ability and Intelligence) · Indian Economy

1. (a) destination-based consumption tax
2. (b) origin-based production tax
3. (c) destination-based sales tax on transaction
4. (d) origin-based tax on sales transaction

Answer: (a) destination-based consumption tax

Explanation

Nature of GST

How to think: ask where the tax is collected and on what.

GST is collected by the state where the goods are consumed, not where they are made.

It is a tax on consumption (supply of goods and services).

Old system: the earlier central sales tax was origin-based, favouring manufacturing states.

That is why producer states were given compensation for five years.

Answer: (a) destination-based consumption tax.

Why each option is right or wrong

• (a) CORRECT. GST is a destination-based tax on consumption.
• (b) Incorrect. GST is not origin-based, and it is not a tax on production.
• (c) Incorrect. It is destination-based, but it taxes supply and consumption of goods and services, not just sales.
• (d) Incorrect. GST is not an origin-based tax.

Key point

GST: destination-based, consumption tax, multi-stage with input tax credit, one nation one tax. 101st Amendment 2016; in force 1 July 2017; GST Council under Article 279A; CGST, SGST, IGST. Outside GST: alcohol for human consumption; petroleum products for now.

Remember

GST: destination-based consumption tax.

Common mistakes

• Calling GST origin-based like the old central sales tax.
• Describing it as a tax on production, like the old excise duty.
• Forgetting that GST covers services as well as goods.

Exam tip

Educated guess: the official description of GST, repeated everywhere, is destination-based consumption tax. Option (a) is that phrase word for word.

Sources

• GST Council — Brief history and concept of GST
• Economic Survey 2016-17 and 2017-18 — chapters on the Goods and Services Tax

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