UPSC Prelims 2011 Q16: Indian Economy – Taxation
- (a) It is a multi - point destination - based system of taxation
- (b) It is a tax levied on value addition at each stage of transaction in the production - distribution chain
- (c) It is a tax on the final consumption of goods or services and must ultimately be borne by the consumer
- (d) It is basically a subject of the Central Government and the State Governments are only a facilitator for its successful implementation
Answer: (d) It is basically a subject of the Central Government and the State Governments are only a facilitator for its successful implementation
Explanation
Finding the statement that is NOT a feature of Value Added Tax
VAT taxes the value added at each stage of making and selling a good, with credit given for tax already paid earlier in the chain.
| Option | Verdict | Reason |
|---|---|---|
| (a) Multi-point, destination-based system | Correct | VAT is collected at every stage (multi-point) and ultimately belongs to the state of consumption (destination-based) |
| (b) Tax on value addition at each stage | Correct | This is the definition of VAT |
| (c) A tax on final consumption, borne by the consumer | Correct | Through tax credits, the final burden falls on the end consumer |
| (d) Basically a Central subject, states only facilitators | Incorrect | Under the pre-GST system, VAT was a State subject; states designed and administered it, they were not mere facilitators for a Central tax |
VAT in India before GST:
| Point | Detail |
|---|---|
| Administered by | State Governments, under their own VAT Acts |
| Replaced | State-level Sales Tax |
| Later replaced by | GST, from 1 July 2017 |
Answer: (d) It is basically a subject of the Central Government and the State Governments are only a facilitator for its successful implementation.
Why each option is right or wrong
- (a) Incorrect. This statement is true: VAT is multi-point and destination-based, so it is not the answer to this 'not a feature' question.
- (b) Incorrect. This statement is true; taxing value addition at each stage is exactly what VAT means.
- (c) Incorrect. This statement is true; the final consumer bears the tax after credits are passed along the chain.
- (d) CORRECT. VAT, before GST, was a State subject; states were not mere facilitators for a Central Government tax.
Key point
VAT: multi-point, destination-based, taxes value addition, ultimately borne by consumer, and was a STATE subject (not Central) before GST replaced it in 2017.
Remember
VAT was a State subject before GST took over in 2017.
Common mistakes
- Assuming any major tax must be a Central Government subject.
- Missing that the question asks which statement is NOT a feature.
- Forgetting VAT was administered under separate State VAT Acts, pre-GST.
Exam tip
Before GST (2017), VAT belonged to the States, not the Centre. Any option saying otherwise is the odd one out.
Sources
- Ministry of Finance, Government of India — White Paper on State-Level Value Added Tax (2005)
- Encyclopaedia Britannica — value-added tax