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Kerala PSC Indian Economy Book Study Materials Page 37Book's First Page
ntrod tion 1.19 (the wage someone gets in hand per day or per purchasing things from the market, and again at month), the second form is real income (this is the point of the governments (as their income nominal income minus the present day rate of receipts). Collection/source of indirect taxes are inflation—adjusted in percentage form), and the the ‘disposable income’ (which individuals and last one is the disposable income (the net part companies have with them after paying their direct of wage one is free to use which is derived after taxes—from which they do any purchasing and deducting the direct taxes from the real/nominal finally, the indirect taxes reach the government). income, depending upon the need of data). What Thus, if the national income is calculated at factor happens in practice is that while the nominal cost, the formula to seek it will be: income might have increased by only 5 per cent, National Income at Factor Cost = NNP at it looks 15 per cent if the inflation is at the 10 Market Cost – Indirect Taxes per cent level. Unlike India, among the developed However, if the national income is being nations, inflation has been around 2 per cent for derived at ‘market cost’, the indirect taxes do many decades (it means it has been at lower levels not need to be deducted from it. In this case, and stable, too. This is why the difference between the government do not have to add their income the incomes at constant and current prices among accruing from indirect taxes to the national them are narrow and they calculate their national income. It means, that the confusion in the case of income at current prices. They get more reliable national income accounting at factor cost is only and realistic data of their income). related to indirect taxes. tAxes & nAtionAl income subsiDies & nAtionAl income While accounting/calculating national income Similar to the indirect taxes, the various subsidies the taxes, direct and indirect, collected by the government, needs to be considered. In the case which are forwarded by the governments need to of India, to the extent the direct taxes (individual be adjusted while calculating national income. income tax, corporate income tax, i.e., the They are added to the national income at market corporate tax, divident tax, interest tax, etc.) are cost, in the case of India. Subsidies are added in concerned, there is no need of adjustment whether the national income at market cost to derive the the national income is accounted at factor cost or national income at factor cost. This is because the market cost. This is so because at both the ‘costs’ price at which subsidised goods and services are they have to be the same; besides these taxes are made available by the government are not their collected at the income of source of the concerned real factor costs (subsidies are forwarded on the person or group. factor costs of the goods and services) otherwise we will have a distorted value (which will be less But the amount of indirect taxes (cenvat, than its real value). Thus, the formula will be: customs, central sales tax, sales tax/vat, state excise, etc.) needs to be taken into account if the national National Income at Factor Cost = NNP at income is accounted at ‘factor cost’ (which is Market Cost + Subsidies the case with India). If the national income is If the national income is derived at the market calculated at factor cost then the corpus of the cost and governments forward no subsidies there total indirect taxes needs to be deducted from it. is no need of adjustments for the subsidies, but This is because, indirect taxes have been added after all there is not a single economy in the world twice: once at the point of the people/group who today which does not forward subsidies in one or pay these taxes from their disposable income while the other form.