Towards an African Continental Free-Trade Area: What are the fiscal and welfare implications for Senegal?

This article aims at evaluating the fiscal and welfare consequences of import tax removal in Senegal with the rest of Africa, using an extended version of the PEP static computable general equilibrium (CGE) model (Decaluwé et al., 2013). We first remove tariffs only in the agricultural sectors, then on all imported goods in Senegal from the rest of Africa. The results show eliminating tariffs on agricultural commodities (Sim-1) lead a decline of fiscal revenue of government. However, the full tariff elimination, on the other hand, generate positive impact. In order to keep unchanged, the level of tax revenues, we liberalize tariff in agricultural and primary goods and at the same time we propose to increase indirect taxes (e.g. VAT). Indirect taxes are relatively simpler to collect and that other taxes (e.g. direct taxes) will be more difficult to be implemented in the short run. We design two separate simulations. We modify the TVA rate on two different goods, namely Food and beverage and tobacco and Information and communication. The former is a good whose share is important in the consumption budget of both Rural and Urban Households, even if relatively more for Rural Households. The latter is a negligible item in the consumption budget of Rural Households, while it is important for Urban Households. Our experiments indicate that the options regarding the type of goods on which an increase in TVA rate is made, while preserving the tax revenues, will have important distributional effects between Rural and Urban Households.