The cost of production may increase or decrease, depending on the VAT levied on raw materials. When the VAT is increased, the cost of raw material subsequently goes up to accommodate the tax. For a manufacturing company, this means having to re-strategize its budget to accommodate the change in taxation. The marketing function of the company, together with other departments, is forced to downsize on its expenditure.
In the case of elastic goods, the manufacturer shares the costs imposed via VAT with the consumers. An increase in this tax automatically results in an increase in the price of the product. At least two of three consumers change their spending habits as a result, according to statistics.gov. Therefore, a marketer has the task of convincing the consumer that the product is still relevant to his life, even with the increased price. Marketers also face demonstrating added value to the product, whether perceived value or actual value, with the increase in price.
An increase in VAT results in the search for alternative methods of advertising. When the VAT on paper is increased, marketers have to spend more money when running advertisements in a newspaper for the same space used. They are therefore forced to find alternative methods to create awareness for the same products. Some may choose to re-strategize their customer care unit so as to offer more effective services. In doing so, they capitalize on positive public relations that offer them free advertisement through word of mouth by satisfied clients.
A decrease on VAT imposed on raw materials and other services required for successful product production results in more disposable income for the company. The company can use these funds to improve on the company image and re-branding. Marketers should come up with ways to re-brand their organizations with the new-found funds.