Question

Can you think of examples of taxes that are paid largely by consumers? What about those that are likely to be paid by producers? Explain why the person who pays is different from who is responsible for sending the tax money off to the taxing authority. (Length: 150 - 250 Words)

Answer 1

Examples of taxes that are largely paid by consumers are sales tax. This is an indirect tax paid by the consumers. The government earns this ad from the sellers stating for every sale of the goods and services, the seller has to pay a part of the amount to the government. However, the sellers take this tax from the consumers by increasing the price of the product. However, this depends on the elasticity of the goods and services. If the producers see by levying the whole amount of taxes on the consumers, still the sale of the product remains the same, then they will do that. However, if by levying the whole amount of taxes, the sale reduces, then the producers will pay a part of tax by themselves and a part by consumers.

However, if the products are very elastic, ie by levying even a small amount of taxes on the goods, the sale of the product decreases, then the producers will not levy any amount of tax on the consumer but producer themselves will pay the amount of taxes.

In case of sales tax the producers are responsible to send the tax money to the authority. However, the tax amount might be paid by the consumers.