publication
Political Connections and Tariff Evasion: Evidence from Tunisia


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Port of Rades, Tunisia. 

© Dana Smillie l World Bank

This 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, the report 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.

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 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.