ANALYSIS OF DETERMINANTS OF CUSTOM TAX BUOYANCY IN PAKISTAN

Abstract

Objective: The paper investigates the major determinants which are affecting customs tax buoyancy in Pakistan in the short run and the long run. The study uses time series data from 1990-2024.

Research Gap: Customs taxes are an important part of Pakistan’s government income, but there is no work done on how these taxes grow when the economy grows. Most studies focus on total taxes or income tax.

Methodology: The study employed the ADF test for estimating the stationarity of data and used ARDL for long-run data estimations, while ECM is used to estimate the short-run relationship.

Variables of the Study: The study used Custom Tax Buoyancy as the dependent variable while GDP, inflation, unemployment, trade openness, tax base and manufacture value added as independent variables.

Main Findings: The empirical results of the study reveals that in long run GDP has positive and significant relationship with custom tax buoyancy, MVA, tax base and trade openness have positive but insignificant relationship with custom tax revenue. While, inflation and unemployment have negative and insignificant relationship with custom tax revenue.

Practical Implications of Findings: The study recommended that Policymakers should focus on enhancing trade openness to improve the economy in the short term. It is essential to investigate these factors further to understand their long-term effects and potential interactions with trade openness. Policymakers should prioritize maintaining economic stability through prudent fiscal and monetary policies. To maximize revenue, the government should consider optimizing tax policies and improving tax collection mechanisms.