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Reporting import tariffs (and other taxes)

Reporting import tariffs (and other taxes)
Reporting import tariffs (and other taxes)
This paper derives the implications for compliance and fiscal revenues of a tax base that is the product of several factors. For instance, in the case of import tariffs, the tax base is the product of quantity and unit value, both reported to, and during an audit assessed by, the custom authority. Import tariffs are particularly interesting as custom receipts represent an important share of government revenues in many developing countries and there has recently been a surge in empirical studies showing how evasion in this field is a pervasive phenomenon. I show that, with a multiplicative tax base, when the fiscal authority has an imperfect detection technology a greater declaration in one dimension actually increases the fine when evasion in the other dimension is detected. Therefore, there is an additional incentive for the taxpayer to underdeclare and a multiplicative tax base is subject to more evasion, compared to a tax base that can be assessed directly. As a result, fiscal revenues decrease with the dimensionality of the tax base. Also, voluntary compliance and fiscal revenues may be higher when the importer is required to declare only the total value of imports instead of quantity and unit value separately.

This paper provides an argument in favour of uniform or specific tariffs and a reason for why a flat tax may improve compliance.
tariff, tax evasion, multiplicative tax base, imperfect detection, flat tax
0927-5940
1-21
Tonin, Mirco
2929ca00-ca4e-4eb3-bf2b-a5d233b80253
Tonin, Mirco
2929ca00-ca4e-4eb3-bf2b-a5d233b80253

Tonin, Mirco (2013) Reporting import tariffs (and other taxes). International Tax and Public Finance, n/a, 1-21. (doi:10.1007/s10797-012-9262-8).

Record type: Article

Abstract

This paper derives the implications for compliance and fiscal revenues of a tax base that is the product of several factors. For instance, in the case of import tariffs, the tax base is the product of quantity and unit value, both reported to, and during an audit assessed by, the custom authority. Import tariffs are particularly interesting as custom receipts represent an important share of government revenues in many developing countries and there has recently been a surge in empirical studies showing how evasion in this field is a pervasive phenomenon. I show that, with a multiplicative tax base, when the fiscal authority has an imperfect detection technology a greater declaration in one dimension actually increases the fine when evasion in the other dimension is detected. Therefore, there is an additional incentive for the taxpayer to underdeclare and a multiplicative tax base is subject to more evasion, compared to a tax base that can be assessed directly. As a result, fiscal revenues decrease with the dimensionality of the tax base. Also, voluntary compliance and fiscal revenues may be higher when the importer is required to declare only the total value of imports instead of quantity and unit value separately.

This paper provides an argument in favour of uniform or specific tariffs and a reason for why a flat tax may improve compliance.

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e-pub ahead of print date: 11 January 2013
Keywords: tariff, tax evasion, multiplicative tax base, imperfect detection, flat tax
Organisations: Economics

Identifiers

Local EPrints ID: 347418
URI: https://eprints.soton.ac.uk/id/eprint/347418
ISSN: 0927-5940
PURE UUID: e619621c-3124-43f1-9379-423380ad7c82

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Date deposited: 24 Jan 2013 10:17
Last modified: 19 Jul 2019 21:45

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