Evidence indicates that since the revolution evasions have declined among firms connected to the former Ben Ali regime, but overall tariff evasion has risen.
WASHINGTON, June 25, 2015— A new World Bank report documents the widespread practice of avoiding import duties by firms with privileged connections to the regime of former Tunisian president Zine El Abidine Ben Ali. By underreporting the price of imports, Political Connections and Tariff Evasion: Evidence from Tunisia calculates that between 2002 and 2009, these connected firms managed to evade at minimum an estimated US$1.2 billion in tariffs
The report identifies tariff gaps by comparing data on exports from Tunisia’s trade partners with the value of imports reported at Tunisian customs. The declared value of imports by Ben Ali connected firms was found to be 18% higher than average firms, with declared quantities of imports 21% higher, but reported unit prices were found to be on average 4.8% lower. For imported goods subject to high tariffs, the reported prices were even lower at 8.1%. This type of underreporting allowed connected firms to evade US$217 million in taxes in 2009 alone.
“This report reveals the economic damage caused by tariff evasion over the last decade, with losses to the state reaching into the billions of dollars,” said Eileen Murray, World Bank Country Manager for Tunisia. “The Ministry of Finance with support from the World Bank has been preparing a set of customs reforms, to simplify procedures and make them more transparent, which will both boost exports and leave fewer opportunities for tariff evasion.”
Apart from fiscal losses, the avoidance of import duties by connected firms also undermined competition and created an uneven playing field. It gave connected firms an unearned advantage over ordinary firms that was based neither on higher productivity nor greater efficiency. It also contributed to inequality by allowing wealthier, politically connected elites to amass greater profits by paying lower import duties.
“The fiscal losses we calculated are based strictly on the underreporting of prices, and do not factor in other forms of tax fraud such as underreporting the quantity of imports, or the bypassing of customs entirely through smuggling,” said Bob Rijkers, World Bank Economist and lead author of the report. “The revolution has led to a decline in price underreporting by previously connected firms, but this has been coupled with a rise in tariff evasion among ordinary firms and an increase in informal trade.”
The report identifies a 16.2% decrease in tariff evasion following the revolution, in product lines where connected firms were dominant. However, the report also documents a simultaneous increase in tariff evasions of 5.7% in other product lines.
