Q. With reference to Value Added Tax (VAT), consider the following statements:
1.VAT is a multi-point tax collected at each stage of value addition, thereby avoiding the cascading effect of taxation.
2.Unlike VAT, non-VAT tax systems collect taxes only at the final point of sale, thereby reducing tax burden at earlier stages of production.
Which of the statements given above is/are correct?
Answer: A
Notes:
Explanation:
- VAT is imposed at every stage of production and distribution where value is added. Since credit is given for input taxes already paid, it prevents tax-on-tax, eliminating the cascading effect.
- Non-VAT systems often use single-point taxation, but this is usually at the initial or intermediary stages, not just at the final sale. Moreover, they can create a cascading effect because tax is levied again without credit for earlier payments.
Source- TMH Indian Economy by Ramesh Singh
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