Industry Analysis: Evaluating Tax Options for Singapore Taxi Industry

This report provides an industry analysis of the Singapore taxi industry, focusing on the Ministry of Transport's proposed tax structures. It examines two tax options: a per-trip tax and a lump-sum daily tax for taxi companies. Using Cournot competition principles, the analysis determines that a per-trip tax generates higher revenue for the government. The report includes a mathematical analysis of the demand and cost functions for two major taxi companies, Gold Top Taxis and Dark Grey Cabs, to calculate optimal prices and quantities. It concludes that while the per-trip tax is more profitable, the government should implement price ceilings to protect consumers from bearing the full tax burden. The document is available on Desklib, a platform offering study tools and solved assignments for students.

Running head: INDUSTRY ANALYSIS
Briefing for the Industry Analysis
Subject: An industry analysis for the Ministry of Transport for the taxing decision for
the taxi industry.
Prepared by: Name of the student.
Core Message
. The Ministry of Transport in Singapore suggests two types of taxes one
where the tax is imposed after every trip and another, which each of the taxi
companies pay as a lump sum every day (Adachi and Fabinger 2017). The following
sections carry out an industry analysis and finds out that between the two tax
options, the Ministry should go forward with the tax imposed on each trip as it brings
in more revenue.
Recommendation
1. On the basis of the analysis the first tax system suggesting it best in this
situation
2. Additionally the Ministry can also create a price ceiling beyond which the
incidence of the tax cannot be shifted
Key Information
The taxi industry in Singapore is being analyzed after an incidence of tax imposed by
the Ministry of Transport in this report. The Ministry has suggested two tax
structures, but the taxi companies have disapproved of both as they feel that the
burden of taxation will fall on the customers thus raising the price of the trips
(Gambiza and Pinto 2016). The analysis is made to make informed decisions to
which tax framework should be taken up. The analysis shows that the government
tax structure, which suggests the first tax system, which generates higher tax

2Briefing for the Industry Analysis
revenue and therefore the Ministry, should adopt this system of taxation, as it is
more profitable (Li 2016). The rationale behind the imposition of tax is because the
government wants to invest that money in the maintenance of roads and bridges,
which will lead to benefits to the taxi drivers because of better road systems.
However, the taxi companies rejected this, as the customers would face the brunt of
the tax (Schatzinger and Lim 2015).
Recommendation
By using the Cournot competition condition the industry analysis shows a
higher revenue generation from the per trip tax collection system. This also entails
that the burden of taxation would fall entirely on the customers. In order to avoid that,
the government should set the fares themselves through ceilings or fixed rates in
order to protect the customers (Wang, et al. 2018). However, a tax on every trip is
fairer because in that case on days when the number of trips are not as high, the taxi
companies do not feel at a loss which in the case of a lump sum tax they would end
up feeling as irrespective of how many trips are made that tax had to be paid
(Buchholz 2015).
Financial Implications
The results show that on imposing a lump sum tax, the daily revenue that the
government would collect would sum up to $70000 as each of the two taxi
companies would pay $35000. In the case of a per trip tax, it has been seen that
collectively 34300 trips are made and if the tax to be paid for each trip is $2.40, then
the total tax collected in a day is $82320. This amount is much higher than that
generated by the lump sum tax and therefore the first tax option becomes an ideal
choice.

3Briefing for the Industry Analysis

4Briefing for the Industry Analysis
Attachment: Industry Analysis
The market for taxis in Singapore is an oligopoly market structure and
therefore the Cournot competition prevails in the market and that is the method by
which the price and quantities are decided upon and calculated (Mehta, et al. 2015).
Between the two types of taxes that the Ministry of Transport decides on, an industry
analysis has been carried out to find out which of the two taxes must the Ministry
imply on the taxi service providers (Holm, et al. 2015).
Notation
P: the price of a taxi trip in dollars
Q: the total number of taxi trips supplied into the market on a given day
Q1: the total trips made by Gold Top Taxis on a given day
Q2: the total trips made by Dark Grey Cabs on a given day.
TR: Total Revenue
MR1: Marginal Revenue of Gold Top Taxis
MR2: Marginal Revenue of Dark Grey Cabs
TC1: Total Cost of Gold Top Taxis
TC2: Total Cost of Dark Grey Taxis
Analysis
Mathematical Analysis
The taxi industry, which has two taxi service providers namely Gold Top Taxis
and Dark Grey Cabs, show an inverse demand function as given below:

5Briefing for the Industry Analysis
P = 50 - Q
1400
where, P represents the price of a taxi trip in dollars, and Q is the total number
of taxi trips supplied into the market on a given day.
Gold Top Taxis
Since the market has two taxi companies, the total number of taxi trips will be
split between the two companies and this function can be written as the following
(Tremblay and Tremblay 2017):
P = 50 - Q1+Q2
1400
where, Q1 is the total trips made by Gold Top Taxis on a given day and Q2is
the total trips made by Dark Grey Cabs on a given day. The total revenue is
calculated by multiplying price with quantity
TR = P X Q
Therefore, the total revenue generated by Gold Top Taxis is given by
TR1 = 50Q1 - Q1
2+Q1 Q2
1400
The marginal revenue is calculated by the first order differentiation of the total
revenue with respect to Q1. This has been given as:
MR1 = 50 - 2Q1 +Q2
1400
The data collected from the market study that the university conducted helps
in calculating the cost incurred. The cost function for Gold Top Taxi is given by:
TC1 = 100,000 +12.5Q1

6Briefing for the Industry Analysis
From this total cost function, the marginal cost can be found out by
differentiating in terms of Q1 as given below:
MC1= 12.5
By placing in the condition of MR = MC the following is obtained:
50 - 2Q1 +Q2
1400 = 12.5
37.5 = 2Q1 +Q2
1400
2 Q1+Q2 = 52500
Q2 = 52500 - 2Q1……………….1
Dark Grey Cabs
Similarly, the same will be done for Dark Grey Cabs. The total revenue
generated by Dark Grey Cabs is given by
TR = 50Q2 - Q2
2+Q1 Q2
1400
The marginal revenue is calculated by the first order differentiation of the total
revenue with respect to Q1. This has been given as:
MR = 50 - 2Q2 +Q1
1400
The data collected from the market study that the university conducted helps
in calculating the cost incurred. The cost function for Dark Grey Cabs is given by:
TC1 = 100,000 +14Q2

7Briefing for the Industry Analysis
From this total cost function the marginal cost can be found out by
differentiating in terms of Q1 as given below:
MC1=14
By placing in the condition of MR = MC the following is obtained:
50 - 2Q2 +Q1
1400 = 14
36 = 2Q2 +Q1
1400
2 Q2+Q1 = 50400……………………2
Solving equations 1 and 2
Q1 + 2(52500 - 2Q1) = 50400………..3
From equation 3 values of both Q1 Q2 which have been given as follows:
Q1 = 18200
Q2 = 16100
Results
From the results above, the prevailing price of each trip can be calculated using:
P = $(50 - 34300
1400 ) = $25.5
Pt = $27.9
where, Pt is the price after tax.
Now, the tax revenue that the government would collect from the implication of a tax
on a per trip basis will be

8Briefing for the Industry Analysis
$(34300 X 2.40) = $82320
As the tax system charges $2.40 per trip.
However, in the case of a lump sum tax, which is the second proposal that the
Ministry of Transport had made, each company would have to pay $35000 per day
so the tax revenue under this tax system would be
$(35000 X 2) = $70000
Since the tax revenue from the first tax system of $2.40 per trip yields higher
revenue, $82320, than the revenue generated from the lump sum tax system which
yields $70000, the Ministry of Transport would charge a the first tax option on the
taxi industry. This tax system can be graphically represented as shown below
Figure 1: Effect of Tax
Source: Created by Author

9Briefing for the Industry Analysis
As price rises after tax from P = $25.5 to Pt = $27.9, the cab trips demanded
falls while the cab trips supplied rises the difference amount is the tax revenue which
goes to the government and is utilized for the making and maintaining of roads
(Stiglitz and Rosengard 2015).

10Briefing for the Industry Analysis
Reference
Adachi, T. and Fabinger, M., 2017. Multi-Dimensional Pass-Through, Incidence, and
the Welfare Burden of Taxation in Oligopoly.
Bitsch, J., Brochstedt, S., Holm, A.H. and Knudsen, A., 2015. The role of
stakeholders in relation to the business model in the taxi industry. Proceedings of
Pragmatic Constructivism, 5(1), pp.3-17.
Buchholz, N., 2015. Spatial equilibrium, search frictions and efficient regulation in the
taxi industry. Technical report, University of Texas at Austin.
Gambiza, T.M. and Pinto, D., 2016. Sharing the rides but are we sharing the
profits?. Tax Specialist, 19(5), p.187.
Li, H.R., 2016. Taxi positioning in the new age of internet and industrial development
research. Procedia engineering, 137, pp.811-816.
Schatzinger, S. and Lim, C.Y.R., 2015, November. Taxi of the future: Big data
analysis as a framework for future urban fleets in smart cities. In International
conference on Smart and Sustainable Planning for Cities and Regions (pp. 83-98).
Springer, Cham.
Stiglitz, J.E. and Rosengard, J.K., 2015. Economics of the public sector: Fourth
international student edition. WW Norton & Company.
Tremblay, M.J. and Tremblay, V.J., 2017. Tax Incidence and Demand Convexity in
Cournot, Bertrand, and Cournot–Bertrand Models. Public Finance Review, 45(6),
pp.748-770.

11Briefing for the Industry Analysis
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