The burden of indirect tax can be:
Options
AShifted
BNot Shifted
CPartially Shifted
DBurden is on Government
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Public FinancePYQ - Nov 2019 (Inter)Question 124 of 20
All Questions Correct Answer
✅ Option a — Shifted
All Options:
- AShifted
- BNot Shifted
- CPartially Shifted
- DBurden is on Government
Detailed Solution & Explanation
The burden of indirect tax refers to who ultimately bears the cost of the tax.
• The concept of tax shifting is based on the idea that the tax burden can be passed on from one party to another, typically from the producer to the consumer.
• When an indirect tax is imposed on a producer, they can increase the price of their product to maintain their profit margin, effectively shifting the tax burden to the consumer.
• This is possible because the demand for the product is often inelastic, meaning that consumers are willing to pay a higher price rather than go without the product.
• As a result, the burden of the indirect tax can be shifted from the producer to the consumer, making the correct answer that the burden of indirect tax can be shifted.
The incorrect options, such as the burden not being shifted or being on the government, are incorrect because they do not accurately reflect the economic principle of tax shifting, which is a fundamental concept in business economics.
About This Chapter: Public Finance
Paper
Paper 4: Business Economics
Weightage
10%
Key Topics
Fiscal Policy, Budget, Market Failure
This chapter deals with government finances — how the government earns (taxation) and spends (expenditure) money. Key topics include Fiscal Policy, types of taxes (Direct and Indirect), the Union Budget, Public Debt, and the concept of Market Failure and how government intervention corrects it.
View Official ICAI SyllabusExam Strategy Tip
Focus on the difference between Revenue and Capital items in the budget. Understand Fiscal Deficit and its implications. Tax-related MCQs are commonly asked.
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