Do the advantages of indirect taxes

outweigh their disadvantages? Explain your

answer. (6)
Indirect taxes are those imposed on goods and services. The advantages of indirect tax
are that there could be a change in the pattern of demand of goods and services. One
example of this is that certain types of harmful commodities and demerit goods
(cigarettes, alcohol) can be taxed more heavily to discourage purchase of them.
Secondly, externalities and market failure can be controlled, in order to fulfill
macroeconomic objectives. Use of indirect taxes can also fund a deficit and to increase
economic growth. Money raised from indirect taxes can increase government revenue
due to goods having an inelastic demand.
On the other hand, a disadvantage is that indirect taxes affect the redistribution of
income, and can cause income equality. Indirect taxes are regressive, so both poor and
rich people pay the same price for goods, but the tax would have a greater negative
impact on lower-income earners e.g. poor people are forced to pay a higher proportion
of their income on indirect taxes & necessities to live. Another disadvantage is that an
increase in indirect tax will mean less disposable income, causing less spending, a fall
in economic growth, hence may cause unemployment higher levels, and may result in
inflation and a sustained increase in the level of prices
So in conclusion the disadvantages outweigh the advantages. Indirect taxes are
beneficial for decreasing demand of demerit goods and help fulfill macroeconomic
objectives, & all they do is to provide funds for the government etc. However, in the long
term, it can have negative effects of regressive tax while also worsening the state of the
economy as economic growth may be restricted and inflation rises.