Illicit Trade and Tax Revenue: Evidence from Ethiopia

Abstract

The study has an objective to investigate an illicit trade and lost tax revenue in Dire Dawa and Jigjiga routes. This is conducted by employing descriptive research design and concurrent mixed research approaches. To achieve this objective the study has collected data from 726 officials and taxpayers through questionnaire and from 8 higher officials of Ethiopian custom commission and revenue offices of Dire Dawa and Jigjiga branches. These respondents were selected through simple random and judgmental sampling techniques, respectively. The data were analyzed using descriptive statistics like relative importance index to show the most important challenges to integrate illicit traders into the tax system and inferential statistics like Chi-square. The result of the study indicates that the forms of illicit trade undertaken in the routes are in legal checkpoints by faking values and quantity on invoices with bribe and though illegal check points by smuggling contraband and uncustomed goods but there is no gender difference on the involvement in illicit trade. Each involvement in illicit trade makes a government lose a significant amount of tax revenue annually. Easing of the licensing and certifications process for illicit traders to be engaged in the legal forms of trading, provide tax incentives to illicit traders who voluntarily joined to the tax system and taking punitive and educative measure on the involved in illicit trade can be opportunities to put illicit traders in the legal form of trade and tax system.