The article mainly issues about the implementation of the Goods and Services Tax (GST) and its effects on the pricing of consumer items. GST is an ad valorem tax, since as mentioned in the article, it imposes a 6% tax rate on the price of the goods or services. The government has also identified which items will be taxed, depending on the level of its necessity and its elasticity. (HABIB, 2015)

(Graph 1 shows the effect of ad valorem tax on the supply curve)

An implementation of GST would cause a shift of the supply curve upwards and towards the left, from S1 to S2. This is because when a tax is imposed, it would cause the costs of producing the goods to increase, therefore the firm would be willing to supply less output (Tragakes, 2012). In this case, prices for the items which have not been taxed by Sales and Service Tax (SST) before, such as computers, laptops, men’s watches, cosmetics and such which are considered non-essential, will increase and therefore the firms would have to decrease its production. As such, the consumers would also be affected, as they have to pay a higher price for the items due to the implementation of tax. Also, items which were previously imposed with SST, such as television sets and air conditioners, would become cheaper, as the 10% tax rate will decrease to 6% tax rate with the implementation of GST (HABIB, 2015). This will cause the supply curve to shift downwards and rightwards from point S2 to S3. Consumers who are willing to buy these items, are now more capable of buying it. (Graph 2 shows the effect of ad valorem tax on normal goods with high PED)

(Graph 3 shows the effect of ad valorem tax on non-essential items with low PED)

The utilization of taxes depends on the price elasticity of demand (PED) of an item, which can be determined by first differentiating its level of necessity. A necessity, such as food,