2) Given a certain revenue target, the level of octroi rates depends on the size of the tax base.
4) If the revenue target of octroi is higher, then, other things being equal, tax rates on both consumer and intermediate goods will be higher.
Econometric analysis has been undertaken of octroi rates in a sample of councils to determine their degree of consistency with the theoretical principles enunciated above.
Given the qualitative nature of some of the above factors and data limitations, the impact of some of these factors on octroi rates has been captured through the use of dichotomous variables and proxies.
The criterion related to economic efficiency implies that, other things being equal, lower octroi rates should be specified on those commodities the import demand for which is relatively price-elastic.
Dummy variables have also been used to see if there are inter-provincial differences in octroi rate.
ij] = The octroi rate on the 'ith' commodity in the 'jth' local council.
Price variable has been interacted to see if effective octroi rates vary by type of good, type of local council, and provinces.
The above model has been applied to octroi rates of 86 commodities in 23 cities of varying population size and municipal status.
This indicates that local councils do attach importance, first, to protecting local industry from decline in profitability levels and, second, to insulating lower income groups from the burden of octroi to the extent possible.
This implies that in municipal jurisdictions where the level of import of intermediate goods is relatively high (because of greater industrial presence), octroi tax rates are lower.
This may be a reflection partly of the restricted tax base and partly of lack of access to revenues from property tax which compel local governments in small towns and cities to resort to higher octroi taxation.