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