With reference to the principles of a good tax system, consider the following statements: 1. Fairness in taxation includes both horizontal equity and vertical equity. 2. A tax that simultaneously raises revenue and promotes social welfare is said to provide a double dividend. 3. A rigid tax structure with minimal scope for change ensures better tax compliance and thus is a key trait of an ideal tax system. Which of the statements given above is/are correct? |ForumIAS

[A] 1 and 2 only

[B] 2 and 3 only

[C] 1 and 3 only

[D] 1, 2 and 3

Answer: A

Notes:

Explanation:

Fairness in taxation includes both horizontal equity and vertical equity. Horizontal equity means equal treatment for equals (similar taxpayers should pay similar taxes). Vertical equity means those who are better off should pay more — core to progressive taxation.
Taxes on smoking, pollution, etc., generate revenue and reduce harmful behavior — this dual benefit is referred to as the double dividend.
A good tax system must have flexibility, i.e., the capacity to adapt or be modified as needed. Rigidity is not a desirable feature.

Source- TMH Indian Economy by Ramesh Singh

Subscribe to get the latest posts sent to your email.