Burundi lies in Sub-Saharan Africa. In 2013 the government of Burundi brought in VAT, an indirect tax, while cutting corporation tax (the tax on firms’ profits) from 35% to 30%. The United Nations has urged Sub-Saharan African countries to raise tax revenue so that more money is available for spending on reducing poverty. However, there is debate over whether adding more taxes or removing some taxes is more advantageous for an economy.
(a)[2]
Define what is meant by ‘an indirect tax’.
(b)[4]
Explain how a reduction in the rate of corporation tax could lead to higher tax revenue.
(c)[6]
Using a demand and supply diagram, analyse how removing an indirect tax affects the market for the product.
(d)[8]
Discuss whether higher taxes will reduce inflation.
Worked solution & mark scheme
This 20-mark question has a full step-by-step worked solution and mark scheme. One marking point: “A charge on spending / goods and services / consumption” …