(i) Distinguish between direct tax and indirect tax with the help of suitable examples. (ii) Explain the 'reallocation of resources' objective of Government Budget. (i) Suppose the following data is presented for an imaginary economy : Calculate Revenue Deficit and Fiscal Deficit. (ii) Differentiate between public provision and public production.

Question

Accepted Answer

(i) Direct tax vs Indirect tax:

Direct Tax:
- Paid directly by taxpayer
- Cannot be shifted
- Example: Income tax

Indirect Tax:
- Paid by one, burden shifted
- Example: GST

(ii) Reallocation of resources objective:
1. Allocate resources for social welfare
2. Promote priority sectors
3. Reduce regional disparities
4. Support infrastructure development
5. Encourage desired production

Examples: Tax concessions for priority sectors, subsidies for agriculture, SEZs in backward areas

This objective helps in efficient allocation of resources for economic and social development.