Magnitude and Determinants of Trade Mis-invoicing in Burundi

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Ndoricimpa, Arcade
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African Economic Research Consortium
The study examines trade mis-invoicing at both aggregated and disaggregated levels by major trading partners, and by major export and import commodities.Aggregated trade mis-invoicing and disaggregated trade mis-invoicing by major trading partners are computed using DOTS database of the International Monetary Fund (IMF) over the period 1970‒2019. Disaggregated trade mis invoicing by major trading commodities is computed using UN-COMTRADE database over the period 1993‒2019. The study shows that the most occurring practices in trade mis-invoicing are export under-invoicing and import over invoicing. Exports of Burundi to most of its major trading partners are found to be under-invoiced, while imports of Burundi from its major trading partners are in general over-invoiced. The major trading commodities considered are found to be affected by trade mis-invoicing to a great extent. Moreover, an empirical analysis of the determinants of those two common practices of trade mis-invoicing indicates that financial incentives through tax fraud, civil conflicts, governance, capital account openness, the parallel market premium, and the real exchange rate, are the main determinants of export under-invoicing and import over-invoicing. Drivers of trade mis-invoicing at product level were also analysed for some major export and import commodities. The main product-specific factors of trade mis-invoicing are found to be the parallel market premium, the real exchange rate, governance, and civil conflicts. The study's findings suggest that reducing political instability, having a more open capital account, improving governance, as well as reducing taxes and duties, could be ways to reduce the extent of trade mis-invoicing in Burundi. In addition, more effort is needed in ensuring systematic and transparent reporting of international trade transactions.