The effective tariff rate for Malta prior and post to the introduction of VAT in 1995

Abstract

The aim of this dissertation is to evaluate the effects of the reform in the indirect tax system implemented early in 1995 thereby assessing the degree of protection afforded to domestic producers through taxation policy. This reform involved the introduction of value added tax on domestic production, accompanied by a reduction in the average tariff rate on Malta's imports. This is expected to have inflicted a competitive disadvantage upon domestic producers of import substitutes. The extent of the reform in customs tariff rates in the downward direction, indicates Malta's commitment towards becoming a fully fledged member of the European Union. This is due to the fact that the import levies introduced in 1989 to substitute import quotas and other restrictions on imported goods were retained at levels existing prior to the introduction of VAT. This paper attempts to evaluate the magnitude of the rise in competitiveness by measuring changes in the effective rate of protection inflicted by the 1995 customs tariff reform and discusses the need to foster an industrial policy which would ascertain competitiveness for local manufacturing firms.