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Basic Concepts of Taxation Test Online

Mustansar KhanLast Updated: July 8, 2025

Basic Concepts of Taxation Test Online

Basic Concepts of Taxation Test

Total Questions:	50
Time Allowed:	25 Minutes
Total Marks:	50
How to Attempt Test:	Please choose the right Option in MCQ-type question.
Test Helpful For:	FBR Sub Inspector Test Customs Inspector Test FBR Interviews FBR Sepoy Test Preparation for Customs and Tax Related Questions

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1. What does ‘ability to pay’ principle mean in taxation?

Taxes should only be based on property

Taxes should be equal for all taxpayers

Taxes should be paid based on the taxpayer's income

Taxes should be avoided

2. What is the primary characteristic of an indirect tax?

Paid by consumers to suppliers and then to the government

Levied on income or profits

Taxed on property

Paid by the individual directly to the government

3. Which of the following is true about tax evasion?

It is encouraged by the government

It is legal but unethical

It is illegal and involves fraudulent behavior

It involves using legal methods to avoid taxes

4. What is tax avoidance?

Evading taxes through fraud

Illegally reducing tax liability

Using legal methods to minimize tax liability

Hiding income from tax authorities

5. Which of the following taxes is an example of an indirect tax?

Property tax

Income tax

Capital gains tax

Sales tax

6. What is a regressive tax system?

Higher-income earners pay a higher rate of tax

Tax rate decreases as income increases

Lower-income earners pay a higher percentage of their income

Tax rate remains the same for all

7. Which of the following taxes is typically an example of a direct tax?

Import duty

Income tax

Excise duty

Sales tax

8. Which of the following is a key principle of taxation?

Ability to pay

Distribution of wealth

Simplicity in tax evasion

Ensuring fairness only

9. Which type of tax is generally levied on goods purchased?

Estate tax

Sales tax

Income tax

Inheritance tax

10. What is a capital gains tax levied on?

Profits from the sale of assets

Sales of goods

Income from wages

Corporate income

11. Which of the following is a characteristic of tax evasion?

Concealing income from tax authorities

Claiming tax deductions

Using tax credits

Legal methods to minimize taxes

12. Which of the following is NOT an example of a direct tax?

Sales tax

Income tax

Wealth tax

Capital gains tax

13. What is the basis of taxation under the principle of ability to pay?

Tax on property ownership

Tax based on individual income and capacity to pay

Tax based on consumption

A flat rate tax system

14. What is the significance of tax credits?

They increase the total tax owed

They are used to hide income

They apply only to high-income earners

They reduce the amount of tax owed

15. Which tax principle involves levying taxes in such a way that the tax system does not interfere with an individual's economic choices?

Flexibility

Simplicity

Efficiency

Neutrality

16. What is tax compliance?

The process of avoiding tax payments

The legal obligation to pay taxes

Paying less tax than owed

Hiding income to avoid taxes

17. Which type of tax affects all income levels equally?

Regressive tax

Progressive tax

Estate tax

Proportional tax

18. What is the core principle of a progressive tax system?

The more you earn, the less you pay in tax

Taxes are fixed for all individuals

Taxes are based on consumption

Higher income earners pay a higher tax rate

19. What does the term "tax evasion" refer to?

Deliberately failing to pay taxes through fraudulent means

Claiming tax deductions

Avoiding taxes through legal means

Paying taxes early

20. Which of the following is considered a characteristic of a good tax system?

Frequent changes to tax laws

Flexibility to adapt to changes in the economy

High tax rates for all individuals

High complexity

21. What is the main difference between tax avoidance and tax evasion?

Tax avoidance is illegal, while tax evasion is legal

Tax avoidance is legal, while tax evasion is illegal

Tax avoidance is unethical

Tax avoidance involves concealing income

22. Which of the following is an example of a wealth tax?

Income tax

Capital gains tax

Sales tax

Property tax

23. What is the 'ability to pay' principle in taxation?

Taxing individuals with wealth

Taxes should be proportional to income

Taxes should be voluntary

Taxes should be levied equally on everyone

24. What does 'economic efficiency' mean in tax theory?

Taxes should be based on the industry

Taxes should not distort economic decisions

Taxes should be high to raise revenue

Taxes should only apply to businesses

25. Tax avoidance is different from tax evasion because:

Tax avoidance reduces tax liabilities in legal ways

Tax avoidance involves concealing income

Tax avoidance is illegal

Tax avoidance is unethical

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26. What is the difference between progressive and regressive taxes?

Regressive taxes are paid on property

Progressive taxes are the same for everyone

Progressive taxes are only for businesses

Progressive taxes increase with income, regressive taxes decrease with income

27. What is an excise tax typically levied on?

Business profits

Income from wages

Specific goods like alcohol and tobacco

The transfer of property

28. What principle of taxation ensures taxes should be easy to understand and comply with?

Simplicity

Efficiency

Equity

Flexibility

29. What is the primary purpose of tax planning?

To reduce tax liability using legal strategies

To hide income from the tax authorities

To evade taxes

To avoid paying taxes altogether

30. What is a regressive tax?

A tax that benefits the government only

A tax that imposes a higher rate on low-income earners

A tax that benefits high-income earners

A tax that is the same for everyone

31. Which of the following taxes is based on consumption?

Property tax

Estate tax

Income tax

VAT

32. Which of the following taxes is based on consumption?

Property tax

Inheritance tax

Sales tax

Corporate tax

33. Which of the following is an example of a direct tax?

Sales tax

Income tax

Customs duty

Excise duty

34. What does the term 'tax avoidance' refer to?

Avoiding payment by not reporting income

Evading tax laws through fraudulent means

Illegally reducing tax payment

Legal reduction of tax liability

35. Which of the following taxes is typically an example of an indirect tax?

Estate tax

Income tax

Sales tax

Property tax

36. The principle of 'tax neutrality' means that taxes should:

Be applied equally to all individuals

Focus on specific sectors

Not affect economic behavior

Encourage savings

37. Which of the following best describes tax avoidance?

Hiding income from tax authorities

Using legal methods to reduce tax liability

Paying less tax than legally required

Avoiding taxes by fraud

38. What is the goal of a tax system based on the principle of efficiency?

Maximize taxes on businesses

Avoid creating economic distortions

Impose high taxes to generate more revenue

Minimize government revenue

39. Which tax system charges the same tax rate on all income levels?

Progressive tax

Regressive tax

Proportional tax

Flat tax

40. Which type of tax is typically based on consumption?

Income tax

Property tax

Corporate tax

Sales tax

41. Which tax principle is focused on ease of paying and compliance?

Simplicity

Ability to pay

Convenience

Neutrality

42. What is the primary function of tax laws?

To distribute wealth equally

To provide a fair and efficient way to collect government revenue

To punish individuals who earn a lot

To provide an incentive for saving

43. What does tax neutrality ensure?

Taxes are low for all individuals

Taxes only affect high-income earners

Taxes do not affect market decisions

Taxes are avoided

44. Which of the following taxes is levied on the transfer of property?

Capital gains tax

Income tax

Sales tax

Estate tax

45. What does a flat tax system imply?

Tax rates based on property value

Higher tax rates for higher earners

Same tax rate for everyone

Tax rate decreases with income

46. Which of the following is an example of tax evasion?

Donating to charity for a tax deduction

Underreporting income to reduce tax liability

Investing in tax-free government bonds

Claiming deductions on medical expenses

47. Which of the following is a characteristic of progressive taxation?

Tax rate increases as income increases

Tax rate remains constant regardless of income

Tax rate decreases as income increases

Same tax rate applies to all taxpayers

48. Which tax is imposed on goods at the point of sale?

Sales tax

Excise tax

Estate tax

Income tax

49. Which principle of taxation ensures fairness in the distribution of tax burdens?

Neutrality

Simplicity

Efficiency

Equity

50. What is the general goal of a good tax system?

To promote savings over income

To increase government revenue regardless of fairness

To ensure taxes are fairly distributed

To encourage tax evasion

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Mustansar KhanLast Updated: July 8, 2025

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Basic Concepts of Taxation Test Online

Basic Concepts of Taxation Test Online

Basic Concepts of Taxation Test

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Basic Concepts of Taxation Test Online

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