Journal of Tax Research

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Tax evasion in country's import is unobservable and it is not reported in formal statistics. This paper investigates the relationship between tax evasion and tariff rates at the two- digit HS level by panel data pattern. Tax evasion has been defined as the difference of import and export reported between Iran and its major 12 trading partners from 2003 to 2008. According to tax evasion models there is a positive and robust relation between tax evasion and tariff rates. Paper’s results imply that one percentage point increase in tariff rates is associated with 0.9 percent increase in tax evasion in Iran import. Moreover, tariff rates has more impression on tax evasion in imports with the highest- tariff categories to all of the commodities. For imports with highest tariff, one percentage increase in the tariff rates lead to 1/3 percent increase in tax evasion. Trade difference or Import under- invoicing related to 10 commodity groups with highest tariff has estimated $ 2302045.

Keywords: Tax Evasion, Tariff Rates, Trade Difference, Import Under- invoicing, Panel Data

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