Assertion: As a part of tax reforms initiated in 1991, there has been continuous reduction in the rate of indirect taxes.

Reasoning: It is believed that moderate rates of income tax encourage savings and voluntary disclosure of income.

Assertion (A) is not true but Reasoning (R) is correct.

Assertion (A) is not true but Reasoning (R) is correct. There has been continuous reduction in direct taxes and not indirect taxes.

There are two types of taxes: direct and indirect. Direct taxes consist of taxes on incomes of individuals, as well as, profits of business enterprises. Since 1991, there has been a continuous reduction in the taxes on individual incomes as it was felt that high rates of income tax were an important reason for tax evasion. It is now widely accepted that moderate rates of income tax encourage savings and voluntary disclosure of income. The rate of corporation tax, which was very high earlier, has been gradually reduced.