Previous Year Question
In India, the tax proceeds of which one of the following, as a percentage of Gross Tax Revenue, significantly declined during the last five years?
Service Tax
Personal Income Tax
Excise Duty
Corporation Tax
Correct Answer: C
Detailed Solution
The question has to be answered according to the composition of the Central Government’s tax revenue during the approximately five financial years preceding 2010.
Gross Tax Revenue—GTR broadly included major Central direct and indirect taxes such as:
Corporation Tax
Personal Income Tax
Customs Duty
Union Excise Duty
Service Tax
Other Central taxes
The share of an individual tax in GTR is calculated as:
Option (c) is correct
During the relevant period, the absolute collection from Union Excise Duty may have increased in certain years, but its percentage share in Gross Tax Revenue declined considerably.
Indicative Union Budget figures show:
Financial year | Gross Tax Revenue | Union Excise Revenue | Approximate share in GTR |
2004-05 | About ₹3.05 lakh crore | About ₹0.99 lakh crore | About 32.5% |
2008-09 | About ₹6.10 lakh crore | About ₹1.09 lakh crore | About 17.8% |
Thus, the share of Excise Duty declined from nearly one-third of Gross Tax Revenue to less than one-fifth.
Why did the Excise Duty share decline?
The principal factors included:
Progressive reductions in the standard Central Excise rate;
Fiscal-stimulus tax reductions following the 2008 Global Financial Crisis;
A growing contribution from Direct Taxes;
Expansion of Service Tax collections with the growth of the Service Sector;
Faster growth in services and corporate profits relative to manufacturing.
The question asks about the percentage share in GTR, not merely absolute collection. The percentage share can decline even when the nominal collection remains stable or increases, if other taxes grow more rapidly.
Option (a): Service Tax
The Service Tax base was progressively expanded during this period. The growth of the Service Sector increased both Service Tax collections and their share in GTR.
Service Tax had been introduced in 1994 on a small number of services, but its coverage was subsequently expanded.
Therefore, option (a) is incorrect.
Option (b): Personal Income Tax
Personal Income Tax collections increased with higher incomes, expansion of the taxpayer base and improved tax administration. Its share did not record the significant decline described in the question.
Option (d): Corporation Tax
Corporate profits and tax compliance increased during the relevant period. Corporation Tax emerged as one of the Central Government’s largest revenue sources and its share in GTR increased rather than declined.