After TX and TM, domestic relative price is modified:
(2) PdM (1 + tm) / PdX (1 - tx)
where tm is the tax rate on imports and tx the tax rate on exports.
Which is the importance of this change for the estimation of STB? Let’s see first the case of Tax on Exports. In the usual estimation of Tax Burden on the exportable goods sector (STBX) - for example the Agricultural Sector - manual of national accounting assigned all tax revenues that entering to the Treasure must be registered as impacting on the sector. Now, if:
TX0: is the revenue of other taxes different to Tax on Exports paid by the sector TX: is the Tax on Exports revenue X: is the volume of exported goods Pdx: is the domestic unitary price of exported goods VASX: is the value added by the sector of exportable goods
the usual calculation (STBX1) is:
STBX1 = (TX0 + TX) / VASX
= [TX0 + (tx . Pdx . X)] / VASX
However, the Tax on Exports operates as a “Tax on Production”, because modifying the domestic price according to expression (2), the reduction of the value of the exported good operates over all the produced volume, not only on the exported portion of that production. So what is collected by Customs in concept of tax on exports represents only a part of the tax burden supported by the sector. The remaining part is a non registered tax due to not entering into the Treasure and, consequently, it is not computed in the estimation of STBX1. This portion of no computed liability is destined to finance the subsidy generated to the domestic demand of the exportable good, because the internal demanders pay a lower price after tax. 39
The effect of tax on exports seems to be a phenomenon similar to the one announced by the tax expenditure literature, but with the important difference that in that case the exempted taxpayer is the same subsidized agent. Nobody pays any obligation to finance this subsidy; the government simply does not register the no-payment of the tax and at the same time does not register the no-spending of the equivalent subsidy referred to the same person or firm. In the case of Tax on Exports, the equivalent cost of a tax on
39 A numerical example may result useful to clear up concepts. Assume that an Argentine exporter sector produce 100 unities of a good which international market price is one dollar. Half of the production is consumed domestically and the other half is exported. The nominal exchange rate is 3 pesos per dollar. With this exchange rate, sector gross income would be 300 pesos. If government fixes a Tax on Export with rate of 33% the net price will be 2 pesos, and sector gross income – with similar level of production – would be 200 pesos. The difference of 100 pesos is distributed between the government (receiving 50 pesos due to exports of 50 unities, each one levied with 1 peso) and consumers (getting a subsidy of 50 pesos because pay 1 peso less by each consumed unity).