Q. With reference to Value Added Tax (VAT), consider the following statements:
1.VAT is collected at each stage where value is added during production and distribution of goods.
2.Unlike non-VAT systems, VAT prevents the cascading effect of tax and helps control inflation.
3.VAT is considered a pro-poor tax system because it avoids increasing the burden on lower income groups.
Which of the statements given above is/are correct?
Answer: D
Notes:
Explanation:
- VAT is collected at multiple points where value is added—from manufacturer to wholesaler to retailer.
- VAT eliminates the cascading effect (tax on tax) seen in older systems, thereby reducing the inflationary impact.
- Since VAT avoids price inflation and does not increase the tax burden disproportionately, it is considered pro-poor while not being anti-rich.
Source: Indian Economy (N.C.E.R.T)
