Direct and Indirect Taxes and their effect on Singapore.

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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.

Indirect taxes are taxes where the incidence of tax can be shifted about between buyer and seller. Depending on their relative bargaining position, in tax, although imposed on the producer can be shifted to the consumer by the way of price increases. As indirect tax can be a specific tax based on the quantity. An ad valorem tax is based on the value of the good.

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Payers of indirect tax, normally, are unaware that they are being taxed; since the tax is hidden in the prices. If supply is inelastic, producers would bear the tax and vice versa. If demand is perfectly inelastic then consumers would bear the tax.

Examples of indirect taxes are custom duties, excise duties, sales tax, entertainment tax and value added tax.


(b) Fuel in my country is only petrol and electricity from power stations that run on petrol. There are many possibilities as to how a tax will affect individual consumers and the economy.

Consumers can be classified ...

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