Question

Ordinary food items, such as grain, pulses, oil are used by all. Then why is it said that imposing a tax on them will have a greater effect on the poor?

Answer 1

Explanation:

• Explain the effect of taxes on prices of commodities.​
• Then, explain the effect of rise in prices on the cost of living.​
• Finally, explain how increase in cost of living impacts the poor.​

Solution:

• Imposition of taxes leads to an increase in price of goods and services. When taxes are imposed on ordinary food items, it increases their prices as well.
• Increase in prices leads to an increase in cost of living because now everything is more expensive.
• The poor spend a major part of their income on buying such basic commodities. Thus, increased prices due to imposition of taxes negatively impacts their standard of living and pushes them further into poverty.