The tax on a commodity is reduced by 10%, but its consumption is increased by 20%. The percentage increase in the tax revenue derived from it is:

Correct option is B

​Given:

Tax reduced by 10%

Consumption increased by 20%,

Formula Used:

​$$\text{New Revenue} = \text{Old Revenue} \times \left( \frac{\text{New Tax Rate}}{100} \right) \times \left( \frac{\text{New Consumption}}{100} \right)$$​​

​$$\text{Percentage Increase} = \frac{\text{New Revenue} - \text{Old Revenue}}{\text{Old Revenue}} \times 100$$​​

Solution: 

Tax reduced by 10%, so new tax rate = 90%

Consumption increased by 20%, so new consumption = 120% 

Let the Revenue be 1 unit.

​$$\text{New Revenue } = 1 \times\frac{90}{100} \times \frac{120}{100} = 1.08$$ 

Now,

$$\text{Percentage Increase} = \frac{(1.08 - 1)}{1} \times 100 = 8\%$$