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Gst Effects On Certain Goods Essay

866 words - 4 pages

The article mainly issues about the implementation of the Goods and Services Tax (GST) and its effects on the pricing of consumer items. GST is an ad valorem tax, since as mentioned in the article, it imposes a 6% tax rate on the price of the goods or services. The government has also identified which items will be taxed, depending on the level of its necessity and its elasticity. (HABIB, 2015)

(Graph 1 shows the effect of ad valorem tax on the supply curve)

An implementation of GST would cause a shift of the supply curve upwards and towards the left, from S1 to S2. This is because when a tax is imposed, it would cause the costs of producing the goods to increase, therefore the firm ...view middle of the document...

Based on this article, necessities are categorized into essential items such as basic foods and petrol, and non-essential items such as electronics, cosmetics and watches. Since essential items are needed in everyday lives, consumers are willing to buy the items regardless of the price. This means that the items have low PED, that the percentage change in the quantity of the goods demanded is smaller than the percentage change in price. The item is said to be price inelastic. Non-essential items are also a necessity, but considered to be less than that of essential items and still considered to be price inelastic.

On the other hand, there are other goods which are considered in between the necessity and luxury levels. They are considered normal goods. These are everyday household items such as television sets, refrigerators, electric irons, hair dryers and such. Normal goods are goods we can live without, but needed to make our lives simpler. So, when the percentage change in quantity of the goods demanded is higher than the percentage change in price, the goods have a high PED, hence it is price elastic.

Based on my evaluation, by imposing taxes on non-essential items, the government can increase its revenue as the demand for these items would be less affected by the change in price caused by the tax. From the graphs, we can see that the amount of government revenue is greater when applied to non-essential items compared to other normal goods. It is also better for the government to impose an ad valorem tax compared to...

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