Answer to Question #119638 in Microeconomics for mona

Question

the Indian government is considering whether to impose a new indirect tax on all new small cars. discuss the extent to which such a tax might reduce the problems resulting from the increased use of such vehicles.

Answer 1

Imposing a new indirect tax on all new small cars will reduce problems resulting from increased use of such vehicles as described below:

• There will be less burden of tax on the end user of the cars under the Goods and Services Tax (GST)
• GST would help the manufacturers in procuring auto parts at cheaper cost due to improved supply chain mechanism under GST
• There are a lot of free services/ warranties offered by the car manufacturers due to the competition nature of the industry.under GST the free services would also be eligible for taxation
• GST reduces the cost of manufacturing of cars due to the subsuming of different taxes levied previously which would give a bout to the growth of the automobile industry
• GST will be beneficial for the people in the market with small family cars as cess on petrol will be at a minimum rate