UPSC Prelims 2010 Q143: Indian Economy – Taxation
In India, the tax proceeds
of which one of the following as a percentage of gross tax revenue has significantly declined in
the last five years ?
- (a) Service tax
- (b) Personal income tax
- (c) Excise duty
- (d) Corporation tax
Answer: (c) Excise duty
Explanation
Which tax's share of gross tax revenue declined significantly
India's tax structure shifted over the years, with one major indirect tax category losing relative ground.
| Option | Verdict | Reason |
|---|---|---|
| (a) Service tax | Incorrect | Service tax's share was actually growing, not declining, as the services sector expanded |
| (b) Personal income tax | Incorrect | Personal income tax's share was generally rising or stable, reflecting growing formal-sector incomes |
| (c) Excise duty | Correct | Excise duty's share of gross tax revenue declined significantly, due to rate rationalizations and the growing relative importance of other tax categories |
| (d) Corporation tax | Incorrect | Corporation tax's share remained a major and often growing component of tax revenue |
Tax revenue composition shift:
| Point | Detail |
|---|---|
| Declining share | Excise duty |
| Growing shares | Service tax, personal income tax, corporation tax |
Answer: (c) Excise duty.
Why each option is right or wrong
- (a) Incorrect. Service tax's share was growing, not declining, during this period.
- (b) Incorrect. Personal income tax's share was generally rising or stable.
- (c) CORRECT. Excise duty's share of gross tax revenue declined significantly over this period.
- (d) Incorrect. Corporation tax's share remained strong, often growing.
Key point
Excise duty's share of India's gross tax revenue declined significantly over the preceding years — unlike service tax, personal income tax, and corporation tax, which generally grew or held steady.
Remember
Excise duty: the tax category whose share of gross tax revenue declined significantly over the preceding years.
Common mistakes
- Assuming all indirect taxes moved in the same direction, missing excise duty's specific relative decline.
- Confusing excise duty's declining share with an absolute revenue decline (it's about proportion, not necessarily absolute amount).
- Not knowing the broader tax-structure shift toward services and direct taxes during this period.
Exam tip
Excise duty's relative share of India's tax revenue has been on a long-term declining trend — unlike service tax, income tax, and corporation tax.
Sources
- Ministry of Finance, Government of India — Receipts Budget 2009–10 (tax revenue)
- Ministry of Finance, Government of India — Economic Survey 2009–10 (Public Finance)