Question

Choose True/False : Net Indirect Taxes = (Indirect Taxes - Subsidy)

Hint:

If Subsidies > Indirect Taxes, NIT becomes negative, and Market Price will be lower than Factor Cost.

Answer 1

Step 1: Understanding the Concept:
Net Indirect Tax (NIT) is the bridge used to convert Factor Cost into Market Price in national income aggregates.
Step 2: Key Formula or Approach:
\[ Market Price (MP) = Factor Cost (FC) + Indirect Taxes - Subsidies \]
Since \( NIT = Indirect Taxes - Subsidies \), the formula becomes:
\[ MP = FC + NIT \]
Step 2: Detailed Explanation:
1. Indirect Taxes: These are taxes levied by the government on production and sale (like GST), which increase the market price.
2. Subsidies: These are financial aids provided by the government to reduce the price of essential goods.
The "Net" impact is found by subtracting what the government gives back (subsidy) from what it takes (tax).
Step 3: Final Answer:
The statement is True as per the standard economic definition of Net Indirect Taxes.