What is Tax and explain the effects of taxes on the production and demand for Forest products?

Tax

A tax is a compulsory contribution to the public authority to cover the cost of services rendered by the state for the general benefit of its people. So the tax is compulsory payment to the public authority. 

Secondly, a tax is to be paid by a person on whom it is levied whether he derives any benefit from it or not. A person who pays taxes cannot claim to provide a specific service to him or his family.  

When a tax is imposed on a commodity by the state, it passes on to the consumers automatically. Every individual bears the burden of the tax according to his ability to bear it. For instance, a specific tax is imposed on say, forest products. The manufacturer raises the prices of the commodity by the amount of the tax. If the demand for a commodity is inelastic, then the incidence of the tax will be on the consumers. 

It is because the seller/producer knows that if the price is raised by the full amount of the tax, the consumers will not curtail their demands. So he shifts the tax entirely on the consumers. If the demand for the commodity is perfectly elastic, then the incidence of the tax is on the sellers because the seller is aware to the fact that if the price is raised even by a slight amount, the purchasers will reduce the consumption considerably.

Tax clearly affects the marginal cost of the firm. The Marginal cost curve which is also the supply curve of the firm will shift upward to the left by imposing the tax and the amount produced at the going price will be reduced. 

The price of the forestry product will rise in market and demand of the certain products will be reduced by the imposition of various taxes e.g.

The firewood in Change Manga can be at Rs. 100/ per mond, but due to the imposition of various taxes its final value becomes Rs.= 250/per mond in the market. So this burden will force the user to search for a cheaper alternative of this fuelwood, which may be Gas or artificial fuels. 

Similarly is the case with railway they are no more using shisham for fuel engines due to the infliction of tax on wood by the central government. 

Poplar of Peshawar and Charsadda is used for match manufacture throughout Pakistan. Now if the Govt. imposes taxes on poplar it will surely be imposed on the public. 

The Govt. imposed various duties and taxes on timber and timber products the demand for timber products decrease and demand for steel, metals and plastic products increased due to cheap prices in the market.

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