Volume 3, Issue 3, June 2014, Page: 25-36
The Revenue Implications of Trade Liberalization in Tanzania
Manamba Epaphra, Department of Accounting and Finance, Institute of Accountancy Arusha, Arusha, Tanzania
Received: Jul. 19, 2014;       Accepted: Jul. 29, 2014;       Published: Aug. 10, 2014
DOI: 10.11648/j.jwer.20140303.12      View  2957      Downloads  189
Abstract
This paper examines the argument that trade liberalization depresses the import duty revenue, and consequently adversely affects the total tax revenue. The study is thought to be significant because Tanzania experiences difficulty in replacing import duty revenue loss as a consequence of trade reform by strengthening its consumption tax system. In the course of analysis, cointegration analysis and error correction modelling are employed over the 1979/80-2009/10 period. The empirical results show that import duty revenue-to-GDP ratio is positively related to tariff rates, implying that a reduction in the tariff rates results in a significant loss of import duty revenue. The results also show that the removal of protectionist policies led to an increase in import-to-GDP ratio which in turn led to rising shares of import duty revenue in GDP. Finally, the results generate some policy implications. The proper issue in tax design under trade liberalization, Tanzania needs to strengthen the domestic tax system and raise tax revenue without increasing tax rates by reinforcing tax and customs administrations so as to maintain fiscal stability.
Keywords
Imports, Import Duty Revenue, Trade Liberalization, Tanzania
To cite this article
Manamba Epaphra, The Revenue Implications of Trade Liberalization in Tanzania, Journal of World Economic Research. Vol. 3, No. 3, 2014, pp. 25-36. doi: 10.11648/j.jwer.20140303.12
Reference
[1]
African Development Bank Group (2010), “Domestic Revenue Mobilization for Poverty Reduction in East Africa: The Tanzania Case Study,” Regional Department East Africa (OREA).
[2]
Agbeyegbe, T., J. Stotsky, and A. Wolde Marian (2003), “Trade Liberalization, Exchange Rate Changes, and Tax Revenue in sub-Saharan Africa,” Paper Presented at the Ad-Hoc Expert Group Meeting on Maintaining the Government Fiscal Base in the Context of Trade Liberalization, United Nations Economic Commission for Africa, Addis Ababa, October.
[3]
Amponsah, A. W. (2002), “Analytical and Empirical Evidence of Trade Policy Effects of Regional Integration: Implications for Africa,” Trade Policy, Africa Development Forum III, March 3-8, Addis Ababa, Ethiopia.
[4]
Arellano, M. and S. Bond (1991), “Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations.” The Review of Economic Studies, 58. pp. 277 – 297.
[5]
Baunsgaard, T. and M. Keen (2005), “Tax Revenue and (or?) Trade Liberalization,” IMF Working Paper, IMF, Fiscal Affairs Department.
[6]
Blejer, M., and A. Cheasty (1990), “Fiscal Implications of Trade Liberalization,” in V. Tanzi (ed), Fiscal Policy in Open Developing Economies, Washington D.C. International Monetary Fund, pp. 66-81.
[7]
Chelliah, Raja J. (1971), “Tax Reforms Committee Reports,” Interim (1991), Parts I (1992) and II (1993).
[8]
Charemza, W.W. and D. F. Deadman (1992), New Directions in Econometric Practice, Edward Elgar, England.
[9]
Di John, J. (2010), “The Political Economy of Taxation and State Resilience of in Zambia since 1990,” Crisis Study Working Paper (Series 2) 75, London; London School of Economics.
[10]
Dollar, David and Kraay Art (2001), “Trade, Growth, and Poverty,” World Bank Research Paper. Vol. 38 (3).
[11]
Ebrill, L., J. Stotsky, and R. Gropp (1999) “Revenue Implications of Trade Liberalization,” International Monetary Fund Occasional Paper, No. 180, Washington D.C.
[12]
Engle, R. F. and C. W. J. Granger (1987) “Cointegration and Error Correction: Representation, Estimation and Testing”, Econometrica, 55, 251-76.
[13]
Escolano Julio (1995), “International Trade Taxes,” in Tax Policy Handbook, edited by Parthasarathi Shome (Washington: International Monetary fund.)
[14]
Farhadian-Lorie, Ziba, and Menachem Katz (1989), “Fiscal Dimesions of Trade Policy,” in Fiscal Policy, Stabilization, and Growth in Developing Countries, ed. by Mario I. Blejer and Key-young Chu (Washinton), International Monetary Fund, pp. 276-306.
[15]
Fukasaku, K. (2003), “Fiscal Impact of Trade Liberalization: A Review of Recent Country Experience in Africa,” UNECA, Addis Abba.
[16]
International Monetary Fund (IMF) (2003), “Adjustment in IMF-Supported Programmes,” IMF Washington.
[17]
International Monetary Fund (IMF), “Government Finance Statistics Yearbook,” assorted issues.
[18]
International Monetary Fund (IMF), (2005), “Dealing with the Revenue Consequences of Trade Reform,” Fiscal Affairs Department, IMF.
[19]
Johansen, S. (1988), “Statistical Analysis of Cointegration Vectors,” Journal of Economic Dynamic and Control, 12: 231-254
[20]
Johansen, S. and K. SJuselius (1990) “Maximum Likelihood Estimation and Inference on Cointegration: with Application to the Demand for Money”, Oxford Bulletin of Economics and Statistics, 52, 169-210.
[21]
Khattry, Barsha and Mohan Rao (2002), “Fiscal Faux Pas?: An Analysis of Revenue Implication of Trade Liberalization,” World Development, Vol. 30, No. 8, pp. 1431-1444.
[22]
Kubota, K. (2000), “Fiscal Constraints, Collection costs, and Trade Policies,” Policy Research Working Paper No. 2366, World Bank, NewYork.
[23]
Matlanyane, Adelaide and Chris Harmse (2001), “Revenue Implications of Trade Liberalization in South Africa,” University of Pretoria, South Africa.
[24]
McLaren, J. (1998), “Black Markets and Optimal Evadable Taxation”, Economic Journal, Vol. 108 (448), pp. 665-679.
[25]
Paudel, Dandapani (2006), “Revenue Implications of WTO Regime and Alternative Measures for Revenue Mobilization,” Economic Policy Network, Policy Paper 29.
[26]
Pritchett, Lant, and Geeta Sethi (1994), “Tariff Rates, Tariff Revenues, and Tariff Reform: Some New Facts,” World Bank Economic Review, No.8 (1), pp.1-16.
[27]
Rodrik, Dani (2001), “Trading in Illusions,” Foreign Policy, March/April.
[28]
Rodrik, Dani, (1995), “Trade Strategy, Investment, and Exports: Another Look at East Asia,” NBER Working Papers No. 5339, National Bureau of Economic Research, Inc.
[29]
Stock, J.H. (1987) “Asymptotic Properties of Least Squares Estimators of Cointegrating Vectors”, Econometrica, 56, 1035-56.
[30]
Tanzania Revenue Authority (TRA) (various), Revenue Performance Reports, Dar es Salaam: Tanzania Revenue Authority.
[31]
Tanzi, Vito (1989), “The Impact of Macroeconomic Policies on the Level of Taxation and the Fiscal Balance in Developing Countries,” The International Monetary Fund, Staff Paper, Vol. 36, pp. 633-56.
[32]
UNECA (2004), Economic Report on Africa, United Nations Economic Commission for Africa, Addis Ababa.
[33]
World Bank (2002), “Tanzania at the Turn of Century: Background Papers, and Statistics,” World Bank, 2002.
[34]
World Trade Organization (2003), “Adjusting to Trade Liberalization: The Role of Policy, Institutions, and WTO Disciplines,” Paper No. 15.
[35]
World Trade Organization (2003), “Revenue Implications of Trade Liberalization,” Negotiating Group on Market Access, TN/MA/W/18/Add.2, April.
Browse journals by subject