Tax policy and capital market in Tanzania

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University of Dar es Salaam
The main objective of this study has been to examine whether tax policy favours capital market in Tanzania. Specifically, the study examined the effect of tax policy on the profitability of financial assets with emphasis on equities and its implication on the Tanzania capital market development. Period covered is between May 1998 and December 2004, Pre-tax , after- tax rates of return and effective tax rates on five financial assets are calculated as a means of defining the impact of taxation on each asset. Although taxation significantly reduces returns on all the five assets, l listed equities are the least taxed assets of all financial assets due to tax incentives they enjoy. As such, the tax policy is not an obstacle to investors ' participation on the capital market, but rather it enhances the demand for the market instruments. Prevalent tax incentives have been successful in laying a good foundation in promoting capital market development and they come with little negative fiscal impact due to the insignificant contribution of financial taxes to total government revenues. However, these incentives are geared to stimulate demand than supply of capital market instruments as they do not encourage companies from the private sector to source funds through the capital market. The study recommends increased tax incentives to further stimulate the supply side of the stock market through reduced corporate taxation foe listed companies. Listed companies should also be allowed to carry forward capital losses arising from investments in the capital market against taxable income. Moreover, efforts need to be increased to enhance ordinary Tanzania’s’ awareness on the workings of the stock market and its resulting benefit.
Available in printed form, East Africana Collection, Dr. Wilbert Chagula Library, Class mark (THS EAF HJ 4127.T34S37)
Tax protests and appeals, Taxation, Taxation-Tanzania, Taxation control
Sarumbo, H.A (2006) Tax policy and capital market in Tanzania.Master dissertation, University of Dar es Salaam, Dar es Salaam.