Shifting and Incidence of Indirect Taxes on Tobacco and Petroleum Products in Pakistan

Indirect taxes have always occupied a dominant position in the tax structure of Pakistan. This has worried economists of various inclinations because of the widespread belief that indirect taxes tend to be regressive and interfere with efficient resource allocations. The resource allocations effects of such taxes is not considered in this paper which restricts itself to an analysis of the incidence of excise duties on tobacco products and petroleum products. Prior to the levy of export duties in 1972, two of the most important sources of indirect taxes were excise and import duties on petroleum and tobacco products. Together these groups accounted for roughly 60 per cent of excise duty collections and one third of indirect taxes in 1969-70. Moreover, additional taxes levied year after year seldom by-pass these two groups. A detailed analysis of the incidence of these two taxes will, therefore, constitute a necessary and important feature of the incidence of taxes in Pakistan.