• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Direct and Indirect Taxes and their effect on Singapore.

Extracts from this document...


Q. (a) Explain the difference between direct and indirect taxation. (8) (b) What effect do you think and increase in a tax on a necessity such as fuel would have on individual consumers and the economy (12) A. (a) Direct taxes are government taxes where the burden or the incidence of the tax falls on the taxpayer and he will not be able to shift it to someone else. The tax payer is fully aware of the tax. He knows the kind of tax and the rate system he is paying. He knows when to pay it and where to pay it. In Singapore, direct taxes are income taxes on individuals, sole properties and partnerships. The rate ranges from 4% to 45%. The property tax falls on assets such as houses, land and buildings. It ranges from 12% to 30%. Other examples of direct taxes Singapore are death duties, inheritances tax, road tax and payroll tax. ...read more.


Refer to the diagram below: The tax causes the supply to fall from SS to SS1. The price rises from P to P1. The supply of petrol is perfectly elastic because Singapore imports all her petrol from the middle east market. The demand for petrol is inelastic because it is an external good and also because the proportions of costs it takes up on private motoring is rather small. The motorists real income would fall but not very significantly and it is also unlikely that in Singapore they would give up cars. In the case of commuter who use public transport, they too may suffer a fall in real income. Both the bus and MRT service run on petrol and petrol electricity. The tax will raise the cost of operation. Because commuters? demand for public transport is inelastic, the incidence of tax will be pushed on them. The PED is inelastic because public transport is an inferior good. It is the cheapest form of transport people can reply on. ...read more.


For those companies who are unable to meet the higher wage bill, they will have to lay off workers. Unemployment in the country will increase. The inflationary trend will have its effects on savings, investment and on external balances. During inflation, savings fall because people have to spend more of their income to buy the same basket of goods. A fall in savings may cause interest rates to rise, in turn may cause a fall in investment. Refer to the diagram below: If the Marginal efficiency or capital (MEC) is elastic , the fall in investment (I to I1) will be more proportionate than the rise in interest rates (r to r1). A fall in investment will slow down the country?s economic growth. Externally, the country may have loose its competitiveness due to the higher prices of its exports. Growth in exports may slow down and imports may pick up. The country?s balance of payments worsens. In its worse scenario, the country may develop a deficit, and external debt, increased unemployment and a general fall in living standards. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our AS and A Level Macroeconomics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related AS and A Level Macroeconomics essays

  1. Budget 2004-05 and Economic Analysis of Pakistan

    This is not surprising given the composition of industrial growth; i.e., the high growth industries are largely capital-intensive and assembly or packaging type operations. A glaring deficiency of the Economic Survey 2003-04 is the absence of any meaningful reference to the issue of income distribution, including regional disparity.

  2. Why does smoking lead to an external cost?

    UK- even with higher interest rates- because of the expectation that the value of the pound will be eroded by inflation, thus leading to a fall in the value of the pound and vice-versa. Trade balance also has an effect on the value of the pound.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work