Question

How does an increase in tax on diesel impact the poor?

• A. An increase in tax on diesel decreases demand for two-wheeler vehicles.
• B. An increase in tax on diesel increases the demand for cycles.
• C. An increase in tax on diesel increases the cost of transportation, which increases the cost of goods.
• D. An increase in tax on diesel increases the consumption of goods and services.

Answer 1

The correct option is C An increase in tax on diesel increases the cost of transportation, which increases the cost of goods.

An increase in the tax on diesel increases the cost of transportation of essential goods. This in turn increases the price of essential goods, which affects the poor. So, the Finance Minister has to plan taxes in such a way that high income earners pay high taxes, and the burden of taxes is less on the poor.