Burundi is a country in Sub-Saharan Africa. In 2013 the government of Burundi introduced VAT, an indirect tax, while lowering corporation tax (the tax on firms' profits), from 35% to 30%. The United Nations has encouraged Sub-Saharan African countries to increase their tax revenue in order to have more funds available to spend on reducing poverty. There is, however, a debate about whether imposing more taxes or removing some taxes is more beneficial for an economy.

Mark scheme

Marking points from the official mark scheme (May/June 2016). The mark or mark type is shown in brackets.

1. [1] A tax on spending / goods and services / consumption
2. [1] the burden of the tax can be moved on to someone else
3. [1] example
4. [1] A lower tax will increase the profit firms can keep / lower the cost of production
5. [1] encourage them to increase output
6. [1] increasing employment
7. [1] pay higher wages
8. [1] direct tax revenue would rise
9. [1] Spending / consumption may increase
10. [1] more revenue from indirect taxes
11. [1] axes correctly labelled – price and quantity or P and Q
12. [1] demand and supply curves correctly labelled
13. [1] supply curve shifted to the right
14. [1] correct equilibriums identified either by a line drawn to both axes or equilibrium points clearly identified e.g. E and E1
15. [1] removing an indirect tax effectively reduces costs of production
16. [1] A greater supply will lower price
17. [1] Increases in income tax
18. [1] will reduce disposable income
19. [1] spending may fall
20. [1] lower demand will reduce demand-pull inflation
21. [1] Increases in corporation tax
22. [1] reduces profits firms can keep
23. [1] reduces demand for capital goods/investment
24. [1] Increases in indirect taxes
25. [1] will reduce spending
26. [1] lowering demand-pull inflation
27. [1] Consumers and firms may respond by reducing saving
28. [1] rather than spending
29. [1] Higher indirect taxes and corporation tax
30. [1] increase costs of production / higher prices
31. [1] may cause cost-push inflation
32. [1] Higher income tax may encourage workers to press for wage rises
33. [1] increasing costs of production
34. [1] causing cost-push inflation