Social Incidence of Indirect Taxation in Pakistan (1990 – 2001)

  • Saadia Refaqat

Student thesis: Doctoral ThesisPhD


This study aims at measuring the social incidence of indirect taxes in Pakistan as a result of the tax reform process specifically carried out in the area of indirect taxes (1990-2001). The intention is to analyze how indirect tax reform reflects the policy objectives particularly in the light of equity and distributional considerations envisaged in the tax reform strategy. Whilst one aim is to reflect on the aggregate indirect tax incidence overtime at the national as well as the urban/rural level, the second objective is to provide a high level of disaggregation of incidence picture in order to explore the sensitivity of tax incidence in terms of key commodities. Additionally, this study attempts to illustrate the sensitivity of estimated tax incidence results to the assumption of zero demand responses and to identify welfare enhancing directions of tax reform for Pakistan at the margin by using the marginal theory of tax reform. The findings of this study seem to indicate that a move from dependence on trade tax revenues to GST/VAT revenues for Pakistan has made the overall indirect tax system a little more progressive. It appears post- reform indirect tax incidence is sensitive to taxation of key commodities including sugar, edible oils and basic fuel/utilities. Incidentally, taxation of these commodities also appears to have strong distributional effects on the poor. Whilst exploring the sensitivity of estimated tax incidence results to the incorporation of behaviour responses, our estimated results do not appear to be very sensitive to this incorporation. Furthermore, directions of welfare enhancing tax reform (at the margin) for Pakistan reveal that a reduction in the price of basic food (including beef, wheat, milk and pulses) should be welfare enhancing; taxation of sugar maybe efficient but not equitable, while only taxation of vegetable ghee simultaneously fits both criterion.
Date of Award1 Apr 2008
Original languageEnglish
Awarding Institution
  • University of Bath
SupervisorPhilip Jones (Supervisor)

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