1.2.9 Indirect taxes and subsidies

Question 1

Indirect tax

Answer 1

Tax on consumer expenditure (or) a tax imposed on producers (suppliers) by the government.
Two types:
->Ad valorem - the tax is a percentage in proportion to the price of the good (e.g. VAT)
->Specific tax - tax increases with the amount amount bought (e.g. excise duties on tobacco, alcohol etc.)

Question 2

Subsidies

Answer 2

A grant given by the government, aimed to encourage the production or consumption of a good. this leads to an increase in output at a lower market price.
-> Low-emission vehicles (electric vehicles) eligible for a government grant.