The Budgetary Impact of Import Tax Reform in Ethiopia
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Date
1994-06
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Addis Ababa University
Abstract
Ethiopia is currently i mp lement i ng a s ructura l adjustmen .
program. The program part l y deals wi th reduci ng the overall
fis cal deficit. Tariff reform is one aspect of the package of
trade pol i cy measures env i saged . Tar i ff reform a i ms at lower ing
the average tariff rate in order to cease dis crim i nation
against private sector imports and at rationalizing the
protect i ve s ystem . However, since tariff reduct i on is
undertaken during a per iod of structura l adjustment , the
potential loss of tax revenue from lowering tariff rates is an
i mportant issue which needs special consideration .
The major objectives of this study are to estimate the
effect of changes in the import tax system on total tax revenue
and on other key macroeconomic variables, and to forecast the
future tax revenue due to a recent (1993) system change in the
import taxation.
The main findings are that due to a recent tariff
reduction, i mport tax and total tax revenue will decline in the
future . This reduction in tax revenue, ceteris paribus , will
in turn increase the overall fiscal deficit.
Revenue losses arising from tariff reduction must be
compensated by other sources of tax revenue . In th i s case, the
re commended measures to offset the loss are , moving the
exempted items to lower tariff rates , broadening the domestic
t ax base (particu l ary introducing a single stage sales tax on
goods previously exempted from domesti c tax payment ) and
improv ing administrative capability to el i minate evasion.
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Budgetary Impact