Ethiopia is currently i mp lement i ng a s ructura l adjustmen .rnprogram. The program part l y deals wi th reduci ng the overallrnfis cal deficit. Tariff reform is one aspect of the package ofrntrade pol i cy measures env i saged . Tar i ff reform a i ms at lower ingrnthe average tariff rate in order to cease dis crim i nationrnagainst private sector imports and at rationalizing thernprotect i ve s ystem . However, since tariff reduct i on isrnundertaken during a per iod of structura l adjustment , thernpotential loss of tax revenue from lowering tariff rates is anrni mportant issue which needs special consideration .rnThe major objectives of this study are to estimate therneffect of changes in the import tax system on total tax revenuernand on other key macroeconomic variables, and to forecast thernfuture tax revenue due to a recent (1993) system change in thernimport taxation.rnThe main findings are that due to a recent tariffrnreduction, i mport tax and total tax revenue will decline in thernfuture . This reduction in tax revenue, ceteris paribus , willrnin turn increase the overall fiscal deficit.rnRevenue losses arising from tariff reduction must berncompensated by other sources of tax revenue . In th i s case, thernre commended measures to offset the loss are , moving thernexempted items to lower tariff rates , broadening the domesticrnt ax base (particu l ary introducing a single stage sales tax onrngoods previously exempted from domesti c tax payment ) andrnimprov ing administrative capability to el i minate evasion.