Question

In the government of India's budget for the year 2013-14, the Finance Minister proposed to raise the Goods and Services Tax (GST) on cigarettes. He also proposed to increase income tax on individual earning more than Rupee one crore per annum. Identify and explain the types of taxes proposed by the Finance Minister. Was the objective only to earn revenue for the government? What possible welfare objectives could the Government be considering?

Answer 1

Goods and Services Tax (GST) - Indirect tax. Indirect tax is a tax where the payer and the bearer of the tax are different people.
Income tax - Direct tax. Direct tax is a tax where the payer and bearer of the tax is the same person. Besides the objective of raising more revenue, the proposals also serve some welfare objectives.
$\bullet$ Firstly, raising Goods and Services Tax (GST) on cigarettes will make them more expensive. The price rise is expected to discourage cigarette smoking, which will positively impact the health of . people and raise their welfare.
$\bullet$ Secondly, raising income tax on income above Rupee one crore will reduce the gap between Mel rich and poor people. In other words, income inequalities will reduce.
$\bullet$ Thirdly, the extra revenue raised from these proposals could be spent on health education and otherl welfare enhancing schemes to improve the welfare of the poor.