Tariff Rates and Tax Evasion in Iranâs Imports from Major Trading Partners at Six-Digit HS Level Based on Panel Data Model

Maddah, Majid; Nematollahi, Somayeh

Tariff Rates and Tax Evasion in Iranâs Imports from Major Trading Partners at Six-Digit HS Level Based on Panel Data Model

Authors

Majid Maddah ¹

Somayeh Nematollahi ²

¹ Assistant Professor of Economics, Faculty of Economics and Management, University of Semnan

² M.A. in Economics, University of Semnan

Abstract

Tax evasion linked to imports is a cause for forming informal economy. Tax evasion decreases government revenue and makes restrictions in implementing economic policies. This paper investigates relationship between the tariff rate and tax evasion at the six- digit HS level on trade data of Iran and its twelve major trading partners during 2003 to 2008. According to Bhagwati method, Tax evasion is defined as the discrepancy between the value of imports, reported by Iran, and the value of exports to Iran, reported by its trading partners. The results from estimated tax evasion models show that there is positive and significant relationship between the trading discrepancies or tax evasion and tariff rates among 27917 products. The elasticity of tax evasion with respect to tariff rates is 0.67, i.e. each one-percentage-point increase in the tariff rates raises tax evasion by 0.67 percent in case of total products. Additionally, the elasticity of tax evasion with respect to tariff rates is 0.8 for goods having tariff rates above average. In this case, tax evasion is more likely. The positive impact of tariff rate on tax evasion is not verified for goods having tariff rates lower than average.

Keywords

H26

K42

: Trade Discrepancy

Smuggling

Tariff rate

Tax evasion

Panel Data JEL Classification: F13

20.1001.1.17356768.1392.13.3.5.1

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