Doubt is only for option 1, rest are simple ones.
How can we be sure, given laffer curve, that increase in Indirect Taxes will not impact the sales and thus reduce the tax collections?
1st Options looks dicey.
Anyone explains whether the give answer is right.
India’s tax-to-GDP ratio is well below the emerging market economies. In this
context, which of the following feasible measures government can take to increase tax
income?
1. Increasing the indirect tax rate
2. Implementation of Goods and Service tax
3. Increasing the tax base
4. Promotion of formal banking and digital transactions
Select the correct answer using the code given below:
(a) 2 and 3 only
(b) 2, 3 and 4 only
(c) 1, 2 and 3 only
(d) 1, 2, 3 and 4
Solution: D
All the above measures help to increase the tax income of government.
Comments
Economics is SOCIAL science so largely there are no a equals B and B equals c and so a equal c .. sort of thing ... there is always a probability multiple possibilities .. so while solving economics related questions try to think broadly. One economic policy can yield mutiple results based on internal and external stimulus ( latter is largely beyond ones control)
For instance .. here the case is of increasing indirect tax rate
Strictly going as per laffer curve means ,. If taxes increase to a prohibitive level ( say 90 percent , just an assumption ) then only total collection will fall ... so it rises till certain level of rate and then onwards start falling ( inverted u shaped laffer curve)
But here under ordinary circumstances it’s safe to presume that taxe rate increase is not at prohibitive level ..
also language of question plays an important role .. can , may etc means thinking broadly .. and must etc word means thinking specifically