Question

A group of companies in insia wishes to import high quality ACs from south korea but have to pay a huge import tax on them which would make the ACs very expensive leading to a decline their sale. Ascertain the role of the import tax in this situation.

Answer 1

Dear Student,

In the above mentioned scenario:


Taxes on import is the form of a trade barrier that the government can use to regulate foreign trade. As in case of AC's, where the cost of AC's will be high due to has high import tax.

The role of import tax, as a trade barrier here is:

a. It can put a limit on the amount of AC's being imported from South Korea.
b. It will increase the price of AC's Indian market.
d. It will reduce the import of AC's and impact its overall demand in the Indian market.

Government can use such a measure in order to :

a. Provide protection to Indian AC's manufacturers.
b. Indian manufacturers will prosper in such a scenario.
c. It will create market for Indian goods as well.
d. It will create healthy competition.


Regards