Question

How much of the tax do consumer pay?

Answer 1

Tax incidence is the way tax burden is divided between buyers and sellers.
The tax incidence depends on the relative supply and demand elasticity of the rates. Since supply is more dynamic than demand, buyers can bear the greater part of the tax burden. Where demand is more dynamic than supply, producers should bear much of the tax burden. The higher the tax revenue the more inelastic the supply and demand.

Of example, in the case of tobacco, demand is inelastic–because tobacco are an addictive drug–and taxes are mostly passed on to customers in the form of higher prices. If demand is inelastic, customers are not very sensitive to price increases and when the tax is imposed, the quantity required remains relatively constant. The market is inelastic when it comes to smoking, because customers are addicted to the drug. Then, the seller can pass the tax burden on to customers in the form of higher prices without much decline in the quantity of the balance.

Sellers have no choice but to accept lower rates for their company when a tax is imposed in a market with an inelastic supply–such as beachfront hotels for example. Taxes have no effect on the quantity of the equilibrium. In this situation the tax burden rests on the sellers. If the market were elastic and the sellers could reorganize their companies in order to stop selling the taxable goods, the tax pressure on the sellers would be much lower and the tax would result in a much lower sum of revenue instead of lower prices.