Distributional Incidence of Indirect Taxation on Consumer Groups: Sri Lankan Perspectives

This study set out to find out how households allocated the indirect tax burden in various ways and statistically tests the difference in indirect tax burden among different aspects. Indirect tax revenue is vital to Sri Lanka's economy. We have identified a significant gap in this area in terms of empirical, theoretical, methodological, and practical. A consumer survey was performed, and data were collected using a structured questionnaire using the Stratified Convenient Sampling Method. One hundred fifteen commodity baskets were selected based on the Colombo Consumer Price Index under the broad categories of food and non-food and eleven subcategories of commodity groups. Colombo district was the sample district with the rationale of having the highest household expenditure district as per the Household Income and Expenditure Survey in 2019 conducted by the Department of Census and Statistics. Four hundred eighty-two respondents were collected, representing low-income, middle-income, and high-income households. Descriptive and quantitative approaches were used for the analysis. The findings of the study emphasized that the indirect tax burden rate of low-income households was significantly greater than the indirect tax burden rate of high-income households. The regressive effect was reflected in the findings, indicating that poor households are bearing a higher indirect tax burden rate in terms of average income and average expenditure. The derived Lorenz Curves and the calculated Gini Coefficients also emphasized the regressive effect of the indirect tax, presenting an upward-sloping Lorenz Curve and negative Gini Coefficient values. The statistical test also confirmed there is a statistically significant difference in the indirect tax burden on different income deciles, income groups, and expenditure deciles.