Question 21M.1.SL.TZ1.2a
| Date | May 2021 | Marks available | [Maximum mark: 10] | Reference code | 21M.1.SL.TZ1.2a |
| Level | SL | Paper | 1 | Time zone | TZ1 |
| Command term | Explain | Question number | a | Adapted from | N/A |
Explain two reasons why a government might impose indirect taxes.
[10]
Marks should be allocated according to the paper 1 markbands for May 2013 forward, part A.
Answers may include:
- definition of indirect taxes
- diagram to illustrate the imposition of an indirect tax, with the supply curve shifting left, price increasing and quantity demanded decreasing
- explanation that indirect taxes may be imposed to raise tax revenue, to discourage the consumption of demerit goods, to correct negative externalities in production, trade protection, to redistribute income, e.g. excise taxes on luxury goods
- examples of goods on which indirect taxes are imposed.
A maximum of [6] should be awarded if only one reason is explained.
This was the more popular of the two Section A questions and it was encouraging to see how any candidates were able to explain two reasons why a government might impose indirect taxes and to diagram the imposition of a tax as a shift leftwards of the supply curve. The reasons given were mostly to raise revenue and to lower the quantity consumed of demerit goods. Almost all candidates were able to give examples of goods on which indirect taxes are imposed, cigarettes being the example that was overwhelmingly provided. Often, however, candidates failed to score very high marks here as the reasons were not developed in sufficient detail and/or they were presented in far too general a manner with a lack of reference to economic theory. For example, the raising revenue argument was usually not supported with reference to the rectangle representing government revenue on the supply and demand diagram.
