Q.1 Which of the following is the primary purpose of taxation?
To punish citizens
To raise revenue for the government
To discourage education
To promote inflation
Explanation - Taxation is primarily used to collect funds that allow the government to provide public goods and services.
Correct answer is: To raise revenue for the government
Q.2 Income tax is generally levied on:
Wealth
Property ownership
Earnings of individuals and businesses
Inheritance
Explanation - Income tax is a tax on the money earned by individuals and entities during a financial year.
Correct answer is: Earnings of individuals and businesses
Q.3 Which principle of taxation emphasizes fairness and equal treatment?
Certainty
Equity
Convenience
Economy
Explanation - The principle of equity ensures that taxes are fair and proportionate to individuals' ability to pay.
Correct answer is: Equity
Q.4 VAT stands for:
Value Added Tax
Variable Annual Tax
Verified Asset Tax
Voluntary Additional Tax
Explanation - VAT is a consumption tax levied on the value added to goods and services at each stage of production or distribution.
Correct answer is: Value Added Tax
Q.5 Which authority generally has the power to levy taxes in a country?
Private companies
Non-governmental organizations
Government
Religious institutions
Explanation - Only the government has the legal authority to levy taxes as part of public law.
Correct answer is: Government
Q.6 A progressive tax system means:
All citizens pay the same amount
Higher earners pay a larger percentage of income
Lower earners pay higher rates
Taxes reduce as income increases
Explanation - In a progressive tax system, tax rates increase with higher income levels.
Correct answer is: Higher earners pay a larger percentage of income
Q.7 What is double taxation?
Paying tax twice on the same income
Paying tax in two different currencies
Paying tax and fees together
Paying tax to local and national charities
Explanation - Double taxation occurs when the same income is taxed in two jurisdictions, often domestically and internationally.
Correct answer is: Paying tax twice on the same income
Q.8 Inheritance tax is levied on:
Wealth owned during life
Income from jobs
Transfer of wealth after death
Corporate profits
Explanation - Inheritance tax applies to the transfer of assets from a deceased person to heirs.
Correct answer is: Transfer of wealth after death
Q.9 What is tax evasion?
Legally minimizing tax liability
Unlawfully avoiding taxes
Paying taxes on time
Claiming deductions properly
Explanation - Tax evasion is illegal and involves deliberately not paying owed taxes.
Correct answer is: Unlawfully avoiding taxes
Q.10 Which international body often provides guidelines on taxation treaties?
UNESCO
OECD
WHO
NATO
Explanation - The OECD provides model tax conventions to avoid double taxation between countries.
Correct answer is: OECD
Q.11 Excise duty is usually imposed on:
Specific goods like tobacco and alcohol
General household income
Land property
Charitable donations
Explanation - Excise duties are indirect taxes on goods deemed harmful or luxurious, such as alcohol and cigarettes.
Correct answer is: Specific goods like tobacco and alcohol
Q.12 Which is an example of a direct tax?
Customs duty
Excise duty
Income tax
Sales tax
Explanation - Direct taxes are imposed directly on individuals or organizations, unlike indirect taxes collected through intermediaries.
Correct answer is: Income tax
Q.13 The ability-to-pay principle means:
Taxes should be equal for everyone
Those with greater financial capacity should pay more tax
Only poor people should be taxed
Taxes should only be voluntary
Explanation - This principle underpins progressive taxation where wealthier individuals bear a larger share.
Correct answer is: Those with greater financial capacity should pay more tax
Q.14 A regressive tax system implies:
The poor pay a smaller share of income
The rich pay a higher percentage
The poor pay a larger percentage of income
Everyone pays the same rate
Explanation - Regressive taxes impact lower-income individuals more heavily as a proportion of their income.
Correct answer is: The poor pay a larger percentage of income
Q.15 Which tax is imposed on imports?
Excise duty
Sales tax
Customs duty
Property tax
Explanation - Customs duty is a tariff or tax imposed on goods when transported across borders.
Correct answer is: Customs duty
Q.16 Tax incidence refers to:
Who ultimately bears the burden of the tax
The rate at which tax is imposed
How the government spends taxes
The time of year taxes are collected
Explanation - Tax incidence studies how the economic burden of a tax is distributed between buyers and sellers.
Correct answer is: Who ultimately bears the burden of the tax
Q.17 Which tax is typically considered an indirect tax?
Income tax
Wealth tax
Sales tax
Corporate tax
Explanation - Sales tax is collected by sellers from consumers and passed to the government, making it an indirect tax.
Correct answer is: Sales tax
Q.18 The principle of 'certainty' in taxation means:
Taxes should be fair
Taxes should be clear and predictable
Taxes should be optional
Taxes should only apply to the rich
Explanation - The principle of certainty ensures taxpayers know what, when, and how they are paying.
Correct answer is: Taxes should be clear and predictable
Q.19 Which document often outlines tax laws in a country?
The Constitution
Company by-laws
Religious texts
Private contracts
Explanation - Most countries have constitutional provisions granting governments power to levy taxes.
Correct answer is: The Constitution
Q.20 A tax haven is best described as:
A country with very low or no taxes
A place where tax refunds are guaranteed
An area exempt from all laws
A location where everyone pays high taxes
Explanation - Tax havens attract businesses and individuals seeking to minimize their tax burdens.
Correct answer is: A country with very low or no taxes
Q.21 Which of the following is a purpose of tax deductions?
To increase taxable income
To punish taxpayers
To reduce taxable income legally
To avoid reporting income
Explanation - Deductions allow taxpayers to lower their taxable income according to law.
Correct answer is: To reduce taxable income legally
Q.22 What is tax avoidance?
Illegal hiding of income
Lawful use of provisions to reduce tax
Refusal to pay tax
Misrepresentation of earnings
Explanation - Tax avoidance is legal planning to minimize tax liability, unlike tax evasion.
Correct answer is: Lawful use of provisions to reduce tax
Q.23 Corporate tax is levied on:
Individual salaries
Company profits
Household spending
Exports
Explanation - Corporate tax is a direct tax imposed on the net income of corporations.
Correct answer is: Company profits
Q.24 What does the term 'withholding tax' mean?
A tax collected at the source of income
A tax imposed only on foreign citizens
A tax avoided by withholding payment
A tax on bank savings
Explanation - Withholding tax is deducted by the payer and remitted directly to the government.
Correct answer is: A tax collected at the source of income
Q.25 The principle of 'economy' in taxation means:
Taxes should be collected at high cost
Tax collection should be efficient and economical
Only wealthy people should pay taxes
Tax systems should discourage saving
Explanation - The economy principle stresses minimizing administrative costs in tax collection.
Correct answer is: Tax collection should be efficient and economical