The government of Dachevenda is planning to state a new system of indirect tax that is levied on several distinct items in order to achieve an economic or social or combined purpose. The indirect tax is characterized by a method of collection of taxation whose burden can be shifted from actual taxpayer to another such as the consumer. In this essay, I'm going to analyzed each of the items that the government of Dachevenda plans to levy additional 10% tax on.
Sales tax on the cigarettes
The first type of good that the government prepares to impose additional 10% sales tax is cigarette with a specific social purpose aiming to deter people from smoking. Through the implementation of increasing tax rate the price of cigarettes would be expected to rise, which consequently declines the demand of cigarettes to some degrees. However, as we known the cigarettes is a special commodity with addiction to people that caused its projected price elasticity of demand is only -0.3,
which means it is very inelastic between variables of price and demand. As a result of it, the increasing price may not assist to decrease its demand and consumption to the extent that a great deal number of people quit from smoking. As previously mentioned, the sole purpose of government imposing the extra tax on cigarettes is to change people's purchasing behavior and eventually force people to reduce the consumption of cigarettes but not simply raise government revenue so that the actual performance of this new indirect tax system on cigarettes will not completely achieve the social purpose setting up by the government. On the other hand, introducing this tax system will bring some disadvantages to both the economy and society. According to the research, most of the smokers are from low-middle class in the...