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ISSN: 2151-6219

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Research Article

Tax Rates and Tax Evasion: Evidence from Missing Imports in Tanzania

Manamba Epaphra*

Institute of Accountancy Arusha (IAA) P.O. Box 2798, Arusha, Tanzania

*Corresponding Author:
Manamba Epaphra
Institute of Accountancy Arusha (IAA)
P.O. Box 2798, Arusha, Tanzania
Tel: +255655599775
E-mail: [email protected]

Received date: January 03, 2014; Accepted date: March 16, 2015; Published date: March 23, 2015

Citation: Epaphra M (2015) Tax Rates and Tax Evasion: Evidence from Missing Imports in Tanzania. Bus Eco J 6:139. doi:10.4172/2151-6219.1000139

Copyright: © 2015 Epaphra M. This is an open-access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited

Abstract

Tax evasion is the basic characteristic of many developing countries. De facto tax collections are consequently far below revenue implied by published or de jure tax rates. This paper empirically examines tax rates (tariff plus VAT rates) as the determinants of customs revenue evasion across products, based on a systematic analysis of discrepancies in trade declarations for trading partners, United Republic of Tanzania, Republic of South Africa and China. The results indicate that trade gap is highly correlated with tax rates, that is, much more value is lost for products with higher tax rates. The results also show that the trade gap is correlated with tax rates on closely rated products from Republic of South Africa, implying that evasion takes place through misclassification of imports from higher-taxed categories to lower-taxed ones. However, there is no evidence of misclassification of imports from China. The wide divergences between the effective and statutory tax rates in Tanzanian tax system indicate that there is a scope for raising tax revenue without increasing tax rates by reinforcing tax and customs administrations and reducing tax evasion.

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