Burundi is a country in Sub-Saharan Africa. In 2013 the government of Burundi introduced 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 their tax revenue so that they have more funds available to spend on reducing poverty. However, there is disagreement about whether adding more taxes or removing some taxes is more beneficial for an economy.
(a)[2]
Define what is meant by ‘an indirect tax’.
(b)[4]
Explain how a cut in the rate of corporation tax could lead to an increase in tax revenue.
(c)[6]
Using a demand and supply diagram, analyse the impact of removing an indirect tax on the market for the product.
(d)[8]
Discuss whether higher taxes will lower inflation.
Worked solution & mark scheme
This 20-mark question has a full step-by-step worked solution and mark scheme. One marking point: “A levy on spending / goods and services / consumption” …