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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.
v) Local councils do not appear to have a major concern for buoyancy of revenues in the fixation of octroi rates.
Altogether, we have the conclusion that while on the average there is broadly some adherence to the principles of optimal indirect taxation in the context of octroi rate setting, there are still large deviations from these principles in the case of a number of commodities.
These commodities ought to be targeted first in any effort at rationalisation of the octroi structure.
This paper analyses the determinants of octroi rates on major commodities for a sample of cities (in Pakistan) of varying population sizes and municipal status, and it formulates a judgement on the extent to which norms of optimal indirect taxation have been followed.
This is an interesting paper on the question of the determinants of rates of Octroi taxes, an area which has been greatly neglected in the empirical work in Pakistan.