Singapore Taxi Industry Analysis: Tax Imposition Strategies

This report provides an in-depth analysis of the Singapore taxi industry, focusing on the Ministry of Transport's proposed tax structures: a lumpsum tax and a per-trip tax. The analysis explores the implications of each tax model, considering factors such as revenue generation, impact on taxi companies, and consumer prices. The report utilizes a conceptual framework to determine the most suitable tax structure for the government, concluding that the lumpsum tax is more appropriate for generating higher revenue. The analysis also incorporates a Cournot competition model to examine the market dynamics within the duopoly, providing a detailed breakdown of costs, revenues, and marginal revenues for each taxi company. The report highlights the financial implications of each tax structure, providing calculations for potential daily revenue generation under each scenario. Finally, the report considers the effects of tax imposition on consumer prices and demand, providing a comprehensive overview of the economic impacts of the proposed tax policies.

Running head: TAXI INDUSTRY ANALYSIS
Briefing for the Taxi Industry Analysis
Subject: Industry analysis for the Ministry of Transport of Singapore regarding taxing
activities in the taxi industry
Prepared by:
Core Message
In the taxi industry of Singapore two types of suggested taxes are there- one
is of the lumpsum tax to be paid by each taxi per day and another is of tax imposed
per trip. The concerned analysis tries to find out the most suitable form of tax to be
imposed for greater government revenue generation (Boland, 2014).
Recommendation
1. Lumpsum tax imposition is more suitable for the government
2. The taxation needs to be flexible such that at times of low sales the
companies are not affected
Key Information
In Singapore taxi industry, two types of taxes, aa discussed above, have been
suggested by the Ministry of Transport, but both have been disapproved by the taxi
companies, as according to them the same, by raising the prices of taxi trips, will be
taxing on the customers (Rader, 2014). However, government’s rationale behind
imposition of tax is for investment in infrastructural development (maintenance of
roads, bridges, etc.), which will benefit the society as a whole. As per the analysis
conducted, the lumpsum tax structure will generate higher revenue and is thus, more
appropriate one to be adopted by the government (Banerjee, 2014).

1TAXI INDUSTRY ANALYSIS
Findings by conceptual framework
The findings show that the imposition of lumpsum tax will generate higher tax
revenue. But, the same also has a limitation in the sense that the service providers
are affected when the number of trips is less (Mahanty, 2014).
Solution
To avoid this problem, the tax structure needs to be flexible and the amount
needs to ne changed if the number of trips is very low as otherwise it will be taxing
for the cab companies.
Justification
Imposition of lump sum tax can be more securing for the government as
regardless of the number of trips, the amount of revenue will be fixed for the
government of the country.
Financial Implications
As per the analysis, by imposing a lumpsum tax, the government can collect
daily revenue of $100000, by collecting $50000 from each of the two companies. For
per trip taxation, the collective number of trips being 34300 and the tax per trip being
$2.40, the per day tax collection sums up to $82320, which makes the first option a
better one for the government (Abuselidze, 2015).

2TAXI INDUSTRY ANALYSIS
Attachment: Industry Analysis
The taxi market being a duopoly in Singapore, Cournot competition can be
seen to be existing. The analysis of the market can be seen to be as follows:
Notation
P: Taxi trip (in $)
Q: Total number of trips in a particular day
Q1: Trips by Gold Top Taxis in a day
Q2: Trips by Dark Grey Cabs in a day
TC1: Cost incurred by Gold Top
TC2: Cost incurred by Dark Grey
TR: Total Revenue
MR1: MR of Gold Top
MR2: MR of Dark Grey
Analysis
The inverse demand function for the industry is:
P = 50 - Q
1400
Thus, P = 50 – Q1+Q 2
1400
Total revenue = PXQ
Thus, the total revenue generated by Gold Top is:

3TAXI INDUSTRY ANALYSIS
TR1 = 50 Q1−Q1
2 +Q 1Q 1
1400
Thus, the marginal revenue for Gold Top is:
MR1 = 50 - 2Q1 +Q2
1400
The cost function for the concerned company is:
TC1 = 140000 + 12.5Q1
Thus, the marginal cost of the company is:
MC1 = 12.5
In the equilibrium, MR = MC. Thus, for Gold Top:
50 - 2Q1 +Q2
1400 = 12.5
Therefore, 37.5*1400 = 2Q1 + Q2
Thus, 2Q1 + Q2 = 52500
Q2 = 52500 – 2Q1 – (a)
For the Dark Grey Cabs:
TR2 = 50Q2 - Q2
2+Q1 Q2
1400
The marginal revenue for the concerned company is:
MR2 = 50 - 2Q2 +Q1
1400
The total cost of the concerned company is:

4TAXI INDUSTRY ANALYSIS
TC2= 140000 + 14Q2
MC2 = 14
Thus, at equilibrium:
MR2 = MC2
Thus, 50 - 2Q2 +Q1
1400 = 14
36 = 2Q2 +Q1
1400
2Q2 + Q1 = 50400 – (b)
Solving (a) and (b), it can be seen that:
Q1 + 2(52500 – 2Q1) = 50400 – (c)
Thus, Q1 = 18200
Putting the value of Q1 in equation (b), it can be seen that:
Q2 = 16100
Results
Thus, the price of each trip can be seen to be as follows:
P = (50 - 34300
1400 ) = 25.5
Post imposition of per trip tax, the price per trip is as follows:
P’ = 27.9
The revenue earned by the government by imposing per trip tax is =
(34300*2.40) = 82320

5TAXI INDUSTRY ANALYSIS
Thus, $82320 is the collection for per trip tax imposition.
If lumpsum tax is imposed then each of the two companies will pay $50000
per day, which makes the total revenue amount to be $100000. Thus, the
government earns more when it imposes a lumpsum tax on the cab services in
Singapore (Pearce & Pinto, 2015). The effect of imposition of any tax can be shown
as follows:
Figure 1: Effects of imposition of tax
(Source: As created by the author)
Thus, with the imposition of tax, the price paid by the consumers increase,
which in turn decreases their demand to some extent and the excess revenue
generated over the normal price of the service is accrued to the government in the
form of tax revenue.

6TAXI INDUSTRY ANALYSIS
References
Abuselidze, G. (2015). Formation of Tax Policy in the Aspect of the Optimal Tax
Burden. Retrieved from:
https://mpra.ub.uni-muenchen.de/86277/1/MPRA_paper_86277.pdf
Banerjee, S. (2014). Intermediate microeconomics: a tool-building approach.
Routledge. Retrieved from: http://qasdway.ir/files/Samiran%20Banerjee-
Intermediate%20Microeconomics_%20A%20Tool-Building%20Approach-
Routledge%20(2014).pdf
Boland, L. A. (2014). Methodology for a New Microeconomics (Routledge Revivals):
The Critical Foundations. Routledge. Retrieved from:
https://appel.nasa.gov/wp-content/uploads/sites/2/2013/05/NASA_APPEL_AS
K24i_impact.pdf
Mahanty, A. K. (2014). Intermediate microeconomics with applications. Academic
Press.
Pearce, P., & Pinto, D. (2015). An evaluation of the case for a congestion tax in
Australia. The Tax Specialist, 18(4), 146-153. Retrieved from:
https://espace.curtin.edu.au/bitstream/handle/20.500.11937/22545/227308_1
54918_Pearce_and_Pinto_article.pdf?sequence=2&isAllowed=y

7TAXI INDUSTRY ANALYSIS
Rader, T. (2014). Theory of microeconomics. Academic Press.
Roach, T. (2013). Principles of Microeconomics. Retrieved from:
https://www.travisroach.com/uploads/7/7/3/0/7730267/notes_fall_2018.pdf