Does Better Information Curb Customs Fraud?

Abstract

This paper examines how providing better information to customs inspectors and monitoring their actions affects tax revenue and fraud detection in Madagascar. First, an instrumental variables strategy is used to show that transaction-specific, third-party valuation advice on a subset of highrisk import declarations increases fraud findings by 21.7 percentage points and tax collection by 5.2 percentage points. Second, a randomized control trial is conducted in which a subset of highrisk declarations is selected to receive detailed risk comments and another subset is explicitly tagged for ex-post monitoring. For declarations not subject to third-party valuation advice, detailed comments increase reporting of fraud by 3.1 percentage points and improve tax yield by 1 percentage point. However, valuation advice and detailed comments have a significantly smaller impact on revenue when potential tax losses and opportunities for graft are large. Monitoring induces inspectors to scan more shipments but does not result in the detection of more fraud or the collection of additional revenue. Better information thus helps curb customs fraud, but its effectiveness appears compromised by corruption.

Investigating the dynamics of tax evasion and revenue leakage in somali customs

“…The first challenge in combating tax evasion is understanding its forms and prevalence. Underreporting and misclassification of goods are rampant and often involve collusion with customs officials and the use of falsified documents [ 47 ]. Multinational corporations exploit loopholes in international trade laws through transfer pricing, manipulating profits to minimize taxes.…”