Between 1960 and 1972, most Malagasy production went to France, where it was sold at subsidized prices. In return, preferential treatment was given to French imports. This reciprocal arrangement guaranteed the Malagasy a reliable return for their exports and enabled the French to pay low import duties and virtually monopolize the Malagasy market. Similar trade agreements were arranged with some European Community countries.
Beginning in 1972, however, the government restricted imports as much as possible and began the progressive cancellation of preferential arrangements to ensure greater diversity in supply sources. Import constraints were tightened during the early 1980s because of a severe shortage of foreign exchange but were liberalized in 1986. In 1988, Madagascar began a three-stage comprehensive tariff reform to simplify and reduce rates. Imported goods were divided into five categories and taxed at rates of 10–50%.
Customs duties continue to be an important source of revenue for Madagascar, as they are for many developing countries. The current tariff system, under a 2000 financial law, consists of four kinds of duties: an import tax (5% for crude materials, spare parts and inputs; 5-15% for capital goods; 25-30% for consumer goods; and up to 100% for some luxury items); custom fees of 0-25%; a consumption tax of 1–10%; and a value-added tax (VAT) of 20%.