What would be the impact on price of a commodity with rise in indirect taxes?

1. Increase in its Factory price
2. Increase in its Ex-factory price
3. Increase in its Market price

Select the correct answer using the codes given below:
a) 1 and 3 only
b) 1 and 2 only
c) 2 and 3 only
d) All of the above

Ans – d

Explanation– Indirect taxes are taxes which are collected from manufacturer or retailer. Customs duty, central excise duty, service tax, sales tax, octroi entertainment tax etc are a few types of indirect taxes.

Factory price is the total cost of making a product at the production location, and comprising of raw material, labor, and overhead costs.

Ex factory price is the factor price of the final good made + Indirect taxes of the central government only.Look at Q2,Link.

Now increase in any of the mentioned indirect tax is going to affect factory price first via Raw materials. Ex factory price will also increase if rise is in GoI indirect taxes.

After factory when product will move to market it will be levied with other taxes like sales tax, octroi and other state indirect taxeswhich will further increase the market price.