A group of companies in India wishes to import high-quality AC’s from South Korea but have to pay a huge import tax on them which would make the AC’s very expensive leading to a decline in their sale. Ascertain the role of import tax in this situation.

The import tax in the mentioned situation is acting as a trade barrier.

NOTE - Tax on imports refers to a certain amount of tax which has to be paid by a company in case they wish to bring in foreign goods. The Indian government after independence had put barriers to foreign trade and investment in order to protect the domestic producers of goods and services from the foreign competition. Standing at the early stages of development and at the same time recovering from the economic and financial crisis of British rule, Indian economy was not in a position to face foreign competition. The terms and conditions of foreign trade and foreign investment from producers and companies abroad were certainly not suitable to India’s situation at the time of independence.