Consider the following statements:
1. Higher spending by people will benefit the government by increasing indirect tax revenues.
2. Indirect taxes are regressive, as they take a higher percentage of income from low-income individuals.

Which of the above statements given above is/are correct?
(a). 1 only
(b). 2 only
(c). Both 1 and 2
(d). Neither 1 nor 2

Question

Consider the following statements:
1. Higher spending by people will benefit the government by increasing indirect tax revenues.
2. Indirect taxes are regressive, as they take a higher percentage of income from low-income individuals.

Which of the above statements given above is/are correct?
(a). 1 only
(b). 2 only
(c). Both 1 and 2
(d). Neither 1 nor 2

ONLiNE UPSC · Accepted Answer

Statement 1 is correct: Indirect taxes (such as VAT, excise duties, sales tax) are generally based on consumption. When people spend more, they contribute more to these taxes, thereby increasing government revenue. The government benefits from higher indirect tax collections as consumption rises.

Statement 2 is correct: Indirect taxes are considered regressive because they apply uniformly to all individuals, regardless of income level. However, low-income individuals typically spend a higher percentage of their income on taxed goods and services compared to high-income individuals, meaning they bear a disproportionately higher tax burden relative to their income.

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M Question 1	⏱ 0
Consider the following statements: 1. Higher spending by people will benefit the government by increasing indirect tax revenues. 2. Indirect taxes are regressive, as they take a higher percentage of income from low-income individuals. Which of the above statements given above is/are correct? (a). 1 only (b). 2 only (c). Both 1 and 2 (d). Neither 1 nor 2