Impacts of Cutting GST tax on Batteries

Added on -2020-02-19

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Running Head: GST Levy on BatteriesThe Impacts of Cutting GST tax on Batteries and Related ProductsStudent NameInstitutional AffiliationCourse/NumberInstructor NameDue Date
GST Levy on Batteries2The Impacts of Cutting GST tax on Batteries and Related ProductsPart 1Just like the production of any other commodity in Australia, batteries production is governed by regulations. Tax has to be paid to the government for production of goods or services. The current GST levy tax on batteries of 28% is very high according to the complained posed by the battery manufactures. The high tax is preventing them from producing many batteries (Autocarindia.com, 2017). The government has an aim of a complete transformation from petrol to electric vehicles; however, this decision is interdependent on batteries production. The lower production level of batteries is limiting the supply and thus the final output can only sell at higher prices creating an obstruction to the government’s objective of achieving a 100% shift to electric vehicles by the time we get to 2030. Now the question is how the tax levy affects the production level? Since tax is a mandatory obligation of which has to be paid even if the company is making losses, it is a cost to the production process and it cannot be ignored. The higher tax levy thus makes the production operations more expensive. On the other hand, the producing companies may shift the tax incidence to the consumers, but the tax is so big such that the producers’ obligation is still too large after transferring some of the incident tax. There are several factors that affects the transfer such as elasticity of demand to battery price changes. The Indian battery market will benefit from the taxreduction to 5% bracket since it will translate to a lower production cost and the quantity of batteries produced will rise; the higher quantity level will result in falling prices. Selling at a lower price will benefit the consumers causing their surplus to rise. The producer surplus will rise for selling many units though at a lower price.
GST Levy on Batteries3Fig: The impact of lower price on Batteries Price of Batteries aS1 (High Tax)S2 (lower Tax)ibch gdfeDQi QcBattery QuantityAt the high tax rate, the equilibrium point is at point i with quantity Qi supplied at a high price b. the consumers surplus at the high price is area abi and the producer surplus is area bdi. The reduction of tax will lower the cost of production and the supply level will shift to the right to the curve S2 (low Tax) (Quantity Qc). The increase in supply will fall prices to fall to level c. the consumer surplus will rise from area abi to aihc and the producer surplus area will increase from area bdi to chfe. The deadweight loss equal to igf will be experienced.Part 2A rechargeable battery being an input for electric vehicles means that the two are complement goods. Since the price for batteries is expected to be lower from the reduction of GST, we shall analyze the impact of this on the electronic vehicles. Many economists have laid out an idea that the price for complement goods affect the other good in an opposite manner

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