Taxes & Consumer Choices - Article from the Star Is About the Good & Services Tax

Taxes & Consumer Choices

The article from The Star is about the Good & Services Tax (GST) implementation on April 1, 2015 recently. The article reported that the consumer had adjusted their spending wisely after the implementation of GST. It is because tax implementation will indirectly rise the prices of goods & services which tighten the financial burden of the society. The tax will affect both suppliers and consumers where both of them have to share the tax burden according to the elasticity of the curve. The buyers will have to pay more while the suppliers will receive less for each of the good & service sold.

As we know the tax on goods & services will lead to declining in consumer demands.

Thus the demand curve will shift to the left and it will cause rises in price of goods. As a consequences, the quantity demanded of the goods will fall as well which indicate that the buyers is now buying less compare to previous as the prices have been increased.

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        The effects will same goes to sellers. The taxes will cause downturn in supply of goods & services. Thus the supply curve will shift leftward. Therefore, the prices will increase while the quantity supply will decline simultaneously. This shows that the suppliers are not able to produce more goods as the cost of production is higher compared to previous.

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Thus we can conclude that taxes on buyers and on sellers are equivalent. Therefore it definitely will affect consumers’ behavior before and after the GST implementation. According to The Star, BBDO, an advertising and marketing company, conducted a study on the GST between March and April regarding the changes of consumers’ behavior pre and post-GST implementation. According to the survey, most of the Malaysians tend to save more rather spend more in the sense that they save for what is worthwhile. From an economist view, this phenomenon is so-called substation effect. When the goods price increase, the consumer’s budget constraint will decrease and shit to leftward from budget constraint 1 to budget constraint 2 as their purchasing power is lesser. The indifference curve shift upward from A to B with larger marginal rate of substitution. This shows that the consumers are cutting down their spending and saving more for future purpose.[pic 3]