Explanation Statement 1 is correct: Indirect taxes are higher for low income groups because indirect taxes are regressive in nature. Everyone pays the same rate regardless of income (e.g., 18% GST on goods).The poor spend a larger share of their income on consumption so a larger portion of their income goes toward taxes.
Statement 2 is correct: While the rate of indirect tax doesn’t change with income (i.e., everyone pays the same GST or excise duty), the proportion of income spent on taxed goods does. Lower-income groups spend nearly all of their income on consumption (most of which is taxed). Higher-income groups spend a smaller percentage of their income on consumption and more on savings or services that may be taxed at lower rates or exempted. So, as income increases, the effective burden of indirect tax reduces as a percentage of income.
Statement 3 is correct: Indirect taxes are inflationary by nature. Indirect taxes like GST or excise increase the cost of goods and services. When the government raises indirect taxes, it leads to higher prices, pushing cost-push inflation. Especially visible in fuel, alcohol, and food supply chains.
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