Trade policy reform and international trade tax revenue in Uganda

Abstract

This paper contributes to the literature on the relationship between tariff reform and customs tax revenue by explicitly capturing the institutional features of decision making in the econometric modeling. The results show that exchange rate depreciation has had pass through effects to the domestic market price of imports which reduces trade tax revenue to GDP ratio in the long run, though it increases trade tax revenue in the short term. There are also seasonal patterns in the short term trade tax payment. The results point to some scope to harness the benefits associated with trade policy reform without having to worry a lot about its effects on trade (and overall) tax revenue. In fact, it would be possible to realise modest increases in trade tax revenue if the exemption regime were to be reviewed and if there was capacity to contain the disruptive impact of sharp exchange rate depreciations.