Model Questions for SBI CLERK Exam : GENERAL ENGLISH
Set-04
Directions: Read the following passage carefully and answer the questions given
below it. Certain words/phrases are printed in bold to help you to locate them
while answering some of the questions.
The genesis of service tax emanates from the ongoing structural
transformation of the Indian economy, whereby presently more than one-half of
GDP originates from the services sector. Despite the growing presence of the
services sector in the Indian economy, it remained out of the tax net prior to
1994-95, leading to a steady deterioration in tax-GDP ratio. The service tax was
introduced in 1994-95 on a select category of services at a low rate of five per
cent. While the service tax rate and the coverage of services being taxed have
increased ever since, the combined tax-GDP ratio of the Centre and States,
nevertheless, deteriorated from 16.4 per cent in 1985-86 to 14.1 per cent in
1999-2000. It may be noted that between 1990-91 and 1998-99, the share of
industrial sector in GDP dropped by 6.4 percentage points whereas almost 64 per
cent of the tax revenue was generated by indirect taxes for which industrial
sector continues-to be the principal tax base. On the other hand, during the
same period, the share of services sector in GDP has increased by 10 percentage
points and this sector has still remained poorly taxed. The rationale for
service tax, therefore lies riot only in arresting the falling tax-GDP ratio but
also in ipso facto improving a locative efficiency in the economy as well as
promoting equity.
Against this back-drop, the service tax needs to be designed taking into
account the fact that (i) the share of services in GDP is expanding; (ii)
failure to tax services distorts consumer choices and encourages spending on
services at the expense of goods; (iii) untaxed service traders are unable to
claim value added tax (VAT) on service inputs, which encourages businesses to
develop in-house services, creating further distortions; and (iv) most’ services
that are likely to become taxable are positively correlated with expenditure of
high income households and, therefore, service tax improves equity.
In the Indian context taxation of services assumes importance in the wake of
the need for improving the revenue system, ensuring a measure of neutrality in
taxation between goods and services and eventually helping to evolve: an
efficient system of domestic trade taxes, both at the Central and the State
levels.
The coverage of services under tax net has been progressively widened over
the years. With effect of the Finance Act, 2004, 71 service are presently
contributing to the service tax collections. The services tax is applicable to
ll parts ofIndia except the State of Jammu and Kashmir and is leviable on the
gross amount charged by the service provider from the client. The rate of
service tax was increased from 5 per cent since September 10,2004. With the
increase in tax rate and base of service tax, the collections from the service
tax have shown a steady rise from Rs. 410 crores in 1994-95 tc. Rs. 8,300 crores
in 2003-04; however, they accounted for only 4.4 per cent of the total tax
receipts of the Centre (0.3 percent of GDP) in 2003-04. Service’ tax is
envisaged as the tax of the future. The inclusion of all value added services in
the tax net would yield a larger amount of revenue and make the existing tax
structure more elastic. Once the service sector is adequately covered under tax
net, the buoyant services sector will enable the reversal of declining trend in
tax buoyancy. Besides raising the revenue buoyancy, appropriate taxation of
services sector would also provide equity, efficiency and consistency in the tax
administration as well as neutrality for various economic activities.
Integration of services sector to the tax net would be the prelude to the
introduction of a full-fledged VAT system.
1. The author of the passage seems ‘to be having—
(a) An antagonistic attitude about levying service tax
(b) A favourable attitude towards levying service tax
(c) A sympathetic and lenient view regarding untaxed service traders
(d) A distorted view about equity
(e) A soft comer for the tax payers brought under service tax net
2. Which of the following statements is/are definitely true in the context of
the passage?
(A) The orbit of service tax has been increased to encompass more and more
services.
(B) Despite increasing the coverage of service tax, the actual tax collection is
deteriorating significantly,
(C) Despite widening tax net to bring more and more services under it the
combined Tax-GDP ratio of Centre and States was reduced during 1986-2000.
(a) (A) and (B) only
(b) (A) and (C) only
(c) (B) and (C) only
(d) All of three
(e) None of these
3. Which of the following factors helps service tax improve fairness across
different economic strata of society?
(a) Taxable services are mostly those that are utilized by the rich
(b) Untaxed service traders are prevented from claiming value added tax
(c) Encouragement to in-house services is effected
(d) It improves revenue system
(e) None of these
4. According to the author, the service tax is the tax of the future because-
(a) It will be levied in near future
(b) Its implementation will be effected in the next decade
(c) Its significant impact will be visible at a later period
(d) The future of the nation is largely dependent on it
(e) None of these.
5. Which of the following is likely to happen if services are not brought under
the tax net?
(A) Misrepresentation of customers’ choices.
(B) Stimulating enhancement in spending on services at the cost of goods.
(C) Inability of tax payers to reclaim their taxes already paid by them.
(a) (A) and (B) only
(b) (B) and (C) only
(c) (A) and (C) only
(d) All of these
(e) None of these
ANSWER:
1. (b) 2. (b) 3. (d) 4. (c) 5. (b)
