The incidence of sales tax falls on
(A) Consumers
(B) Wholesale dealers
(C) Retail dealers
(D) Producers
Correct Answer : Consumers
Question Asked : SSC Section Officer (Commercial Audit) Exam 2003
Explanation : In economics, tax incidence is the analysis of the effect of a particular tax on the distribution of economic welfare. Tax incidence is said to "fall" upon the group that ultimately bears the burden of, or ultimately has to pay, the tax. The key concept is that the tax incidence or tax burden does not depend on where the revenue is collected, but on the price elasticity of demand and price elasticity of supply. A tax on the sale of goods (sales tax, excise tax) will ultimately be paid by either the consumer or the firm based on elasticities, regardless of who the government actually levies the tax on. If the consumer ultimately pays the tax, it means that the tax incidence falls on the consumer. If the firm ultimately pays the tax, it means that the tax incidence ultimately falls on the firm.
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Tags : macroeconomics