The Effect of Tax Rate On Tax Revenue And Mis invoicing In Sub – Saharan Africa A Case Study Of Import Tariff On Import Revenue Andor On Import Misinvoicing

Abstract

Large fiscal deficits caused by rapid expansion in expenditure and low levels of revenue are major challenges facing Sub-Sahara African (SSA) countries for the past years. These, coupled with drawbacks in Official Development Assistance (ODA) flows makes it urgent for Governments of these countries to mobilise tax revenue both directly and indirectly. Because of high propensity of SSA citizens to comply, countries have tended to increase the import tariff in order to increase tax revenue, on the theory that, increased tax rate increases revenue. Worldwide debate indicates that, tax leakages such as import misinvoicing reduces trade tax revenue of the developing countries. This import misinvoicing is however, encouraged by higher import tariff. This research uses the System GMM panel regression for twenty-four (24) selected SSA countries over the period 1995-2015, to investigate whether a higher import tariff increases import revenue, and/or for the period 2003-2013, to also find out the impact of higher import tariff on import misinvoicing. The data utilised was obtained from World Bank, World Economic Outlook and UN Commodity Trade Data Bases. The result from the analysis shows that, import tariff significantly increases import revenue, however increasing the tariff beyond the normal range (doubling the import tariff) reduces the import revenue. The above notwithstanding, import revenue is negatively affected by exchange rate. Further, import misinvoicing increases with higher import tariff but rather reduced with expansion in Government expenditure, favorable exchange rate and trade liberation.