The Determinants of Rates of Octroi Tax in Pakistan

Octroi is a tax imposed by local governments in Pakistan on commodities imported into the municipal limits for local use, sale, or consumption. It is levied generally by urban local councils on goods coming in by all modes-sea, land, and air transport. The point of assessment is alongside roads at octroi posts situated at or before municipal boundaries, at railway stations, seaports or airports. Octroi is currently the largest source of revenue to urban local councils in the country and contributes 86 percent to total tax revenues and over 59 percent to total local revenue receipts (see Table I). Its revenue significance (in terms of share in total receipts) has increased over the years. In 1987-88, it accounted for about 57 percent of total local receipts. Also, revenue generation from octroi is higher than that by any provincial tax. In 1991-92, total national collection from octroi was Rs 5.5 billion as compared to Rs 3.5 billion from stamp duties, the largest provincial tax source.