Indirect taxes

• What are the two types of indirect taxes?

  • Ad valorem
  • Specific unit
• Give examples of ad valorem tax:

  VAT - 20%
• Give examples of specific taxes:

  • sugar
  • alcohol
  • tobacco
  • fuel duty
  • air passenger duty
  • environmental taxes
  • insurance premium
• Describe the relationship between the incidence of tax and the PED:

  • If the co-efficient of PED>1, then most of the burden of an indirect tax will be absorbed by the supplier.
  • If the co-efficient of PED<1, most of an indirect tax can be passed onto the final consumer.
• What are the four categories of evaluating indirect tax?

  • Effectiveness of a tax & unintended consequences
  • How much tax revenue is raised & how‘s it used?
  • Impact on businesses/competitiveness
  • Consequences for equity/the distribution of income
• Give detail about the ‘effectiveness of a tax & unintended consequences‘ as an evaluation for indirect tax:

  • Effect of a tax depends in part on co-efficient of elasticity of demand
  • Problems in setting the tax rate at the right level to achieve aims
  • Are there unintended consequences from a tax?
• Give detail about the ‘how much tax revenue is raised & how’s it used‘ as an evaluation for indirect tax:

  • Does an indirect tax generate substantial tax revenues?
  • How’s the tax revenue used - perhaps for particular projects?
• Give detail about the ‘impact on businesses/competitiveness‘ as an evaluation for indirect tax:

  • Might there be a possible loss of jobs and/or capital investment?
  • Will an indirect tax negatively affect competitiveness and trade?
• Give detail about the ‘consequences for equity/the distribution of income‘ as an evaluation for indirect tax:

  • Who are the main winners and losers?
  • Does a tax have a regressive effect on lower income groups?