Trade Liberalization and VAT Reforms in Developing Countries

This is tax world – new episode on the interplay of trade liberalization and VAT tax reform in developing countries by Alex Sieber. With the friendly help of Niklas Schmitt (as host Roger McAustin). Tune in and find out what factors make a successful substitution of trade revenues through VAT more likely and how the failure to introduce a VAT system like in Bangladesh can be explained.

Source: Jernej Furman, creative commons (


While being a primary source of income for many developing and transitional countries, trade taxes such as tariffs arguably discourage the welfare-enhancing activity that international trade has been shown to be. Therefore, developing countries had been recommended to reduce the barriers to trade and open up their economies. The value-added tax, VAT, was key in the attempt to recoup the revenues lost in developing countries. But to what extent has the VAT actually been successful in doing so? Judging from the experience of developing countries, what factors make a successful substitution of trade revenues through VAT more likely? And what elements can account for the failure of VAT tax reform in a country such as Bangladesh?


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