The Role of Tax on Food Price with Special Reference to the Low Earners House Hold: Document and Empirical Evidence Review

Abstract

The recent surge in food prices continues to be a concern for policy makers as well as for the public at large. This require appropriate policy responses – both immediate as well as longer term responses. To better understand this phenomenon, this study explores the role of tax in current in food price trends in developed, and developing countries including Ethiopia. The study basically review documents and empirical findings. The results indicate that: Despite of other factors that influencing food prices (such as: cost of raw materials, existing trends that override tax influences, economic conditions and other legislative changes that outweigh price effects of food taxes and strategic pricing).  Also, the introduction of a tax in the markets increases the cost of the product which in turn may lead to a price increase and consequently it could harm family economic security due to higher proportion of their income spent on foods among low-income (versus higher income) consumers, which could also have negative impacts on income available for other necessary purchases besides food consumptions such as: education, shelter, medication, hygiene, saving, and like would be interrupted and push them further into poverty. At the same time, monetary expansion considered unanimously as one of factors that aggravated the food price situation in Ethiopia. In this regard, over last few year the government has made considerable efforts to halt food price inflation, but still the extent of current level inflation has damaging effect (especially for the low income house hold) unless considerable policy. Thus, it requires consumer oriented (low income earners) well-designed interventions need to be designed. Such as: Reduction of tariffs and customs fees,  Releasing public goods and providing consumer subsidies, Suspension/ reduction of VAT and other taxes,  Control prices and restrict private grain trade and Safety net measures were among the most measurements used to solve food price. At the end, the finding further require in-depth study to support this paper conclussion.

Key Term: Tax, Food Price, Low Income Earners, Policies Pursued.