KUALA LUMPUR: British American Tobacco Malaysia (BAT
Malaysia) has announced a 20sen increase on the prices of all its cigarette
packs effective Monday.
In the article state that, They are informed by the Royal Malaysian
Customs to increase the price of the cigarette to RM 10.20. There are six
factors may can affect the changes of the supplier, example, resources price,
technology, taxes and subsidies, prices of other goods, producer expectation
and number of seller. Why the taxes and subsidies are can affect the changes of
supply? This is because businesses treat most taxes as costs. As the tax of the
service or product increases so does the production costs. Hence, subsidies are
“taxes inverse”. If the government subsidizes the production of a good, it in
effect reduces the production costs and increase supply.
Based on Royal Malaysians Customs demonstrated
that in 22 October 2012, government will increase the cigarette tax from 26% to
58%. There are few examples of income taxes in Malaysia; personal income tax,
payroll tax, corporate income tax and excise taxes. Households are the key
elements in the income taxes as we calling income receiver. Hence, households
are both of consumer and people (everyone), everyone seeking to stratify
unlimited wants and needs. Households is categorized the income receiver by how
it was earned and by how it was divided.
When
cigarette tax increase, it will reduce household income, as it takes more money
out to spent and buy a box of cigarette but when cigarette tax decrease in the
country, it will increase disposable income, because it make households earn
more money and more willing to spent into it. Hence, if the cigarette price
went up, the sales of the cigarette will not decrease because cigarette is some
kind of a ‘drug’ addict. For those who are chain smokers, they will willing to
buy cigarette for themselves and not care for the price so the tax won’t change
the sales of the cigarette. But somehow Income taxes will affect supply and
demand curve will shift to left and right. Tax on
a good is added to the marginal cost of seller of the goods. A increase of the
tax graph below can explain the shift supply and demand curve. $1 of tax on one
product will change the supply curve due to the amount of tax. The shifts in
the supply curve, the equilibrium of price and quantity will also change
because of tax. Eventually the impact on quantity and price will depend on the
price elasticity’s of demand and supply.
This
graph shows the supply and demand curves for products. The examples of
equilibrium price are 400 and 460 thousands console which the demand curves and
the supply curve joint together but there is a 32% (RM0.20) tax on the
supplier. This means that the supplier must pay RM0.20 to government for each
product they had produce to the consumer. Therefore, there is a RM0.20 tax in
each product that they need to produce; suppliers will be less willing to
produce any product at every price they stated so there is not just a movement
on the supply curve, it will shift to left side of the cure. It means the
production of the product decrease due to the taxes that government apply it. For
chain smokers, they would not care about the price and they are willing to
afford to buy whether the price higher than old times is.
When
the price of the product increased from $10 to $10.20 consumers are still able
to purchase cigarette. At the previous equilibrium point, there were 460
products had been sell but at the higher price, there are only 400 products
sold. So there are 60 fewer products sold. The products that are no longer sold
are gains from trade no longer they made, or dead weight loss. This means the
blue area on the graph. But for chain smokers, they are not able to afford to
smoke for every day. It will cause them smoke less and won’t make them quite
immediately. For examples, for one chain
smoker he everyday must have one pack of cigarette and it cost him RM10.20 for
one days. When end of the month he had spent RM316.20 on cigarette box.
Although
the sales tax is a direct impact on the supply, it has only an indirect
influence on consumer demand. In addition to the changes, which need to be
considered demand equilibrium price, sales tax, but also affect the purchasing
power of consumers. When the sales tax rate is high, consumers spent more money
in taxes and spend less on additional goods. In a poor demand market, they will
force the companies to reduce prices in order to maintain a stable demand.
The
sales tax will cause the supply curve shift inward, it has a secondary effect
in equilibrium price for a product. The equilibrium price matches the price of
the manufacturer's supply and consumer demand in a stable price. Since sales
taxes increase the price of goods, it leads to a decline in the equilibrium
price. This may mean that it becomes more difficult for corporate profits, sales
of goods and consumers to change their buying behaviour to purchase more expensive
goods or luxury goods.
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