Indirect Taxes and Economic Growth: An Empirical Analysis of Nepal

Abstract

This paper examines the relationship between VAT, customs, and excise duty in Nepal and economic growth, using secondary data from 1975 to 2019 also explore the debate between high indirect taxes and economic activities.

This paper found a positive relationship between VAT, customs duty, excise duty, export, and economic growth in Nepal, with coefficients of 0.164862, 0.572046, and 0.169034 respectively, indicating a positive economic environment. The paper found a significant short run coefficient of -0.419970, indicating that 99.8% of changes in the dependent variable. The overall model is significant, and autocorrelation is evident. The paper recommends government policy to enhance tax administration and reduce tax exemptions.

This paper reveals autocorrelation in the model estimating indirect taxation's impact on economic growth in Nepal, suggesting a need for government policy to enhance tax administration, expand tax bases, and reduce exemptions.