Consider the following statements:
(A) Land revenue is a production tax.
(B) Stamp and registration fee is a product tax.
(C) Excise tax is paid per unit of product.
(D) Service tax is a production tax.
(E) Factor cost does not include any tax.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → (A), (C) and (E) only
Production taxes do not depend on how much is produced. Product taxes are paid per unit of product. Factor cost has no tax in it.
(A) Land revenue is a production tax. — Correct. Land revenue does not depend on the volume of production, so it is a production tax.
(B) Stamp and registration fee is a product tax. — Incorrect. Stamp and registration fee is a production tax, not a product tax.
(C) Excise tax is paid per unit of product. — Correct. Excise tax is paid per unit, so it is a product tax.
(D) Service tax is a production tax. — Incorrect. Service tax is a product tax.
(E) Factor cost does not include any tax. — Correct. Factor cost includes only the payment to factors.
NCERT (2026-27): “2.2.4 Factor Cost, Basic Prices and Market Prices … The distinction between factor cost, basic prices and market prices is based on the distinction between net production taxes (production taxes less production subsidies) and net product taxes (product taxes less product subsidies). Production taxes and subsidies are paid or received in relation to production and are independent of the volume of production such as land revenues, stamp and registration fee. Product taxes and subsidies, on the other hand, are paid or received per unit or product, e.g., excise tax, service tax, export and import duties etc. Factor cost includes only the payment to factors of production, it does not include any tax. In order to arrive at the market prices, we have to add to the factor cost the total indirect taxes less total subsidies. The basic prices lie in between: they include the production taxes (less production subsidies) but not product taxes (less product subsidies). Therefore in order to arrive at market prices we have to add product taxes (less product subsidies) to the basic prices. As stated above, now the CSO releases GVA at basic prices. Thus, it includes the net production taxes but not net product taxes. In order to arrive at the GDP (at market prices) we need to add net product taxes to GVA at basic prices. Thus, |