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Estimating the Distributional Burden of General Sales Tax in Pakistan

Author

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  • Iffat Ara

    (University of Karachi, Karachi.)

Abstract

Pakistan’s tax regime heavily relies on indirect taxes, constituting 60 percent of total tax receipts, of which general sales tax (GST) is a major component. This paper assessed who bears how much burden of GST levied on domestic production and sales by examining its incidence and distributional burden across household deciles for the year 2018-19. The paper maintained that even if the final product is exempted from tax, it incorporates the impact of taxes levied on intermediate inputs it uses. In order to trace these cascading effects of taxes, the paper used an input-output model-based approach. The results showed that the overall incidence of GST was, on average, 6.7 percent. The distribution of incidence was found to be regressive across the board as well as in rural and urban areas. Analysis by commodity groups indicated that basic food items bore the highest incidence and displayed the highest extent of regressivity across all deciles. This suggests that the poorer segments of society bear a relatively greater burden of GST in Pakistan.

Suggested Citation

  • Iffat Ara, 2023. "Estimating the Distributional Burden of General Sales Tax in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 62(3), pages 395-408.
    • Handle: RePEc:pid:journl:v:62:y:2023:i:3:p:395-408
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    File URL: https://file.pide.org.pk/pdfpdr/2023/395-408.pdf
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    References listed on IDEAS

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    1. Ahmad,Etisham & Stern,Nicholas, 1991. "The Theory and Practice of Tax Reform in Developing Countries," Cambridge Books, Cambridge University Press, number 9780521265638, August.
    2. repec:lje:journl:v:27:y:2022:i:1:p:1-19 is not listed on IDEAS
    3. Haroon Jamal* & Sohail Javed**, 2013. "Incidence of general sales tax in Pakistan : Latest estimate," Pakistan Journal of Applied Economics, Applied Economics Research Centre, vol. 23(2), pages 73-95.
    4. Umir Wahid & Sally Wallace, 2008. "Incidence of Taxes in Pakistan: Primer and Estimates," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0813, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    5. Karageorgas, Dionysios, 1973. "The Distribution of Tax Burden by Income Groups in Greece," Economic Journal, Royal Economic Society, vol. 83(330), pages 436-448, June.
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    Cited by:

    1. Ghulam Mustafa, 2025. "Tax Policy of Pakistan: A Review Paper," PIDE-Working Papers 2025:9, Pakistan Institute of Development Economics.

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    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence

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