Tariff andtax reform : do World Bank recommendations integrate revenue and protection objectives?
Tariff reform aimed at reducing domestic protection and the bias against exports holds the threat of widening the fiscal deficit by causing tariff revenue to decline. Because the success of an adjustment program depends critically on the correction of fiscal imbalances to achieve stabilization, tariff reforms must be coordinated with tax policy recommendations to develop alternative revenue sources. Conversely, the tariff reforms must eliminate the protective elements of domestic tax structures if they are to truly achieve their protection objectives. Rajaram reviews the extent to which the Bank's analysis and tariff recommendations in twelve countries (Bangladesh, Ghana, Indonesia, Jamaica, Malawi, Morocco, Pakistan, the Philippines, Thailand, Turkey, Zaire, and Zambia) reflected such an integrated framework. He focuses on (1) the revenue impact of tariff reform, (2) the effect of domestic indirect taxes on protection, and (3) the structure of protection. The review is admittedly selective and the attempt is to capture the reasoning behind"typical"Bank recommendations. Rajaram finds that the quality of analysis underlying Bank recommendations in this regard is highly uneven. The following broad conclusions are indicated: (1) revenue concerns are often not adequately addressed in the design of tariff proposals, (2) the protective effect of domestic indirect taxes is often not recognized and thus not incorporated into the reform of the structure of protection, and (3) although there is little consensus on a desirable tariff structure, in a few cases the Bank has recommended a uniform nominal tariff. This could be seen as the logical culmination of attempts to narrow the range of tariffs.
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