Production Tax & Production Subsidy - Indian Economy Notes

Production Tax & Production Subsidy - Indian Economy Notes

Production Tax & Production Subsidy: Key Concepts 1. Production Tax A production tax is a tax imposed by the government on the production of goods and services, irrespective of the quantity sold. These taxes are levied at the production stage and are not directly tied to the sale price or quantity sold in the market. Features of Production Tax: Levied during the production process. Increases the cost of production. Paid by producers but may indirectly affect consumers through higher prices. Examples: Property tax on factory buildings, licenses, pollution taxes, etc. Impact of Production Tax: Reduces the producer's profitability. May increase the price of goods for consumers. Decreases competitiveness in the international market. Formula Impact: Factor Cost = Market Price − Production Taxes + Production Subsidies \text{Factor Cost} = \text{Market Price} - \text{Production Taxes} + \text{Production Subsidies} Example: Normal Example: A government levies a pollution tax on factories producing cement t…