Contribution of excise duty to indirect tax revenue of Nepal (With special reference to Tobacco and Liquor Products)

Abstract

Governments in most developing nation heavily rely on tax revenue to sponsor government expenditure, and Nepal is not an exception. Accumulation of funds to cover government spending is the primary purpose of taxation. This study seeks to analyze the trend and position of excise duty on liquor and tobacco products to generate government revenue. Out of 54 excisable products tobacco and liquor were chosen for the study and secondary data from year 2064/65 to 2073/74 were considered to analyze the trend and position of excise duty. Descriptive analysis, percentage, graphs and diagrams, trend analysis and correlation analysis were used to perform the data analysis. Significance was tested at 1% level. The percentage analysis of government revenue indicates that the percentage contribution of tax revenue is in increasing trend and that of non-tax revenue is in decreasing trend. The analysis shows that VAT occupies major portion in indirect tax as custom duty and excise duty are second and third source respectively. The contribution of excise duty in indirect tax and total tax revenue is increased remarkably over the year. Excise duty from tobacco and liquor products occupies 48.21 percent of excise duty and it is in increasing trend every year. The trend value of revenue from excise duty is positive and trend lines are going up right. From the trend analysis of revenue from liquor and tobacco products, revenue growth rate of liquor product is higher than that of tobacco products. There is high degree of positive correlation of excise duty with both indirect tax and total tax revenue. Both the tobacco and liquor product have strong positive correlation with excise duty as well as indirect tax and total tax revenue. The study suggests focusing and giving more priority on excise duty could enhance the revenue raising potential of excise duty and other duties in Nepal. Key words: tax revenue collection, tobacco excise duty, liquor excise duty, time series, Nepalese economy, Nepal