Question

Giving reason, state whether the following is treated in estimating national income:

Payment of income tax by an individual.

Answer 1

• No, payment of income tax by an individual is not included in the estimation of national income.
• This is because income tax is a transfer payment made by individuals to the government. It is a redistribution of income already earned, not a payment for any productive service or output generated in the current year.
• National income includes only factor incomes (wages, rent, interest, and profit) earned from productive activities. Since the income tax is not linked to the current production of goods and services, it is excluded from national income.