1. Indirect taxes impact the elasticity of demand differently for essential and luxury goods. For essential goods, demand is usually inelastic, meaning that even if prices rise due to taxes, consumers will still buy them because they are necessities (e.g., food, medicine). For luxury goods, demand is typically more elastic, so a price increase due to taxes may lead to a significant drop in consumption, as these goods are not essential and can be easily forgone.

2. Indirect taxes are considered regressive because they take a large percentage of income from low-income groups compared to high-income groups, as everyone pays the same rate regardless of their ability to pay.

3. Indirect taxes, specifically excise taxes, are attractive because they have a corrective nature. Such taxes raise revenue and at the same time they correct a market failure through increasing price of the good and thus decreasing its consumption.

4. Indirect taxes can encourage the growth of the informal economy as businesses and individuals may try to avoid paying taxes by operating outside official channels, leading to reduced tax revenue. To minimize tax evasion, governments can implement measures such as improving tax enforcement, using digital payment systems to track transactions, providing incentives for businesses to formalize, and simplifying the tax structure to reduce the burden of compliance.

5. In developing countries, indirect taxes are generally more administratively efficient than direct taxes because they are easier to collect, as businesses include them in the prices of goods and services. They require less complex enforcement and record-keeping compared to direct taxes, which rely on accurate income reporting and tax compliance. However, indirect taxes may still face challenges like informal trade and tax evasion, but they tend to generate more stable revenue in economies with weak administrative infrastructure.

6. Indirect taxes, such as tariffs, directly impact international trade by increasing the cost of imported goods, making them less competitive compared to domestic products. These taxes act as trade barriers, potentially reducing import volumes and distorting trade flows. While tariffs protect local industries, they can lead to retaliation from other countries and reduce global trade efficiency, limiting market access and increasing costs for consumers and businesses.

7. General consumption taxes, excise taxes and customs duties have a negative impact on income distribution.

8. This leads to lower productivity, higher inflationary pressures and deteriorating economic circumstances in the long run.

9. Reducing Carbon Emissions

   Similarly, lower GST rates for renewable energy technologies like solar panels and wind turbines make them more affordable. This spurs their uptake, reduces fossil fuel consumption, and encourages the transition to green energy.

10. Indirect taxes on tobacco and alcohol are effective at reducing consumption by raising prices, discouraging use, especially among price-sensitive groups. Subsidies, on the other hand, promote healthier alternatives, making them more affordable and accessible. Taxes deter harmful behavior, while subsidies encourage healthier choices. Both are effective, but taxes directly reduce harmful consumption, whereas subsidies focus on positive incentives. Combining both can maximize public health outcomes.

aahaa best answers to the best questions.

Thanks