Question : Which of the following is referred to as "paper taxes"?
I. Wealth tax
II. Gift tax
Option 1: Only II
Option 2: Only I
Option 3: Both I and II
Option 4: Neither I nor II
Correct Answer: Both I and II
Solution : The correct option is Both I and II .
The term "paper taxes" refers to taxes that are levied but generate little to no actual revenue for the government. This is because they often apply to a narrow base of taxpayers or are easily avoided through loopholes.
A wealth tax was levied on the net wealth of individuals exceeding a certain threshold. It was abolished in India in 2015 due to its low revenue generation and complex administration.
A gift tax is levied on the value of gifts exceeding a certain limit. While it does generate some revenue, the amount is relatively small compared to other taxes. Additionally, there are ways to avoid the gift tax through legal loopholes.
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