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Export Tax
- Falah Ahmad
- Apr 14
- 3 min read
What It Is and How It Works
Export duties are taxes levied on the sale of goods and/or services from a country abroad. In general, the agency in charge of collecting them is Customs, and their main purpose is to increase government revenue, although they may also pursue distributive or industrial objectives. At present, only a few countries have withholding taxes in force.
The Policy Impact
The main effect of export taxes is to decouple the price at which a good can be sold locally from the price at which it circulates in international markets. This happens because when an export tax is applied, the exporter observes that if he sells that product in the international market, he must give up a percentage of the income to pay the tax authorities, whereas if he sells it in his country of origin, then he can obtain 100% of that value (net of other taxes that may exist). If it was not clear up to this point, do not worry. The following example will surely make it clearer.
Suppose that the price of a barrel of oil is at USD 70 in the international markets, and that a certain oil producing country decides to apply a withholding tax of 10% on crude oil exports. Now, the companies of that country, which used to export at USD 70, will now receive USD 63 for each barrel exported. In that sense, they might prefer to sell it locally at any price greater than USD63. Between USD 63 and USD 70, It would be a “win-win”, since the producing company could not sell it above 63 to the rest of the world, and its local buyers (for example, a gas station) would have to pay USD 70 if they wanted to buy it from a foreign company.
At USD 65, both are better off, but of course this comes at a cost: exports have fallen. Since no country is able to produce absolutely all the inputs needed to make a good product, exports have fallen.
Stakeholders and Political Implications
Although the first actors affected by the establishment of a withholding tax are the exporting companies, its effects can then be distributed to other spheres of the economy. If it is a tax on the export of a basic good (or a wage good), the withholding tax may make it possible to lower its price locally, thus increasing the disposable income of households. This is the case, for example, of wheat exports in Argentina.
Export duties can also be established to stimulate local value added on certain products. Let us suppose that a country establishes a retention on the export of steel, and nothing but steel. Now auto parts manufacturers may be encouraged to increase chassis production, since they can access an important input more cheaply than if they were to import from the rest of the world. Since chassis manufacturing requires more technology, more employees, and more skilled labor, and therefore generates more value added, a government may find it desirable under certain conditions to stimulate this type of production rather than simply exporting steel.
Some Debates Among Economists
In the mainstream economic tradition, free trade is always of mutual benefit between countries and therefore the best foreign policy option, since any obstacle or restriction to foreign trade implies a loss of efficiency. From another perspective, heterodox authors argue that the pattern of international insertion is not neutral (“exporting lithium is not the same as exporting lithium batteries”), and therefore it is necessary to use instruments that favor the production of goods with higher added value. Furthermore, in peripheral countries that tend to adopt export taxes, this ends up generating a severe collateral effect when the reduction of exports causes a shortage of foreign currency, which puts upward pressure on the exchange rate.
Real-World Examples
During 2008, the Argentine Government wanted to establish a program of mobile withholding taxes on agricultural goods. That is, a system of export duties that fluctuated with the international price (in the cycles in which the international price of grains increased, the rate of withholdings increased, and when the international price decreased, so did the rate). This generated a series of protests by rural associations and one of the most important political conflicts of the last decades.
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