Effect of Import Liberalization on Tariff Revenue in Ghana

In contributing to the ongoing debate on the impact of trade liberalization, this paper investigates the quantitative effect of import liberalization on tariff revenue in Ghana. A decomposition analysis was conducted to determine the relative effects of the different features of the import policy reforms. In addition, the impact of tariff rate reductions on tariff revenue was inferred using estimated results from the real imports equation. The study indicates that import tariff revenue is neither buoyant nor elastic in Ghana. Even though exchange rate depreciation over the liberalization period has increased tariff revenue, it is offset by the revenue-reducing effect of tariff reductions over this period. Moreover, the net effect of import liberalization in the form of reductions in the average tariff rate has been negative. The study recommends further improvements in customs administration and duty collection mechanisms to reduce leakage, an effective detection of evasion, enforcement of penalties, and tax replacements as key complementing measures.