The impact of value added tax (VAT) on the performance of the organization: the case of motor vehicle importing companies.

Many developing countries have undertaken tax reform in recent years. The aim of this reform is to increase revenue, to improve efficiency and to promote equity. Tanzania as one of developing countries introduced Value Added Tax in July 1998. The introduction of VAT in Tanzania was one of the major recommendations in the report of the Commission of Inquiry into Public Revenue, Taxation and Expenditure. The aim of this study was to determine how the performance of importing companies were affected due to the introduction of Value Added Tax. Imports of goods are liable to VAT on their importation regardless of whether the importer is registered or not. One of the features of VAT system is that, it is on a "destination" rather than on origin basis i.e. imports are taxable but exports are not. This principle enables the country exports to compete in world markets and at the same time it enables the domestically produced goods to compete with imported goods. The questions that this study answered through hypothesis were; did firms reduced imports after the introduction of VAT, does the change in the level of imports related to the introduction of VAT, has the introduction of VAT affected the revenue of the company and is the introduction of VAT seen as an effective tax system in the country. In conducting this study three hypotheses were tested in order to determine the impact of VAT on companies' imports, revenue as well as to obtain their opinions on VAT. The results obtained showed that there is no relationship between introduction of VAT and volume of imports at firm level; neither no difference in opinion before introduction and after introduction of VAT and nor relationship between the performance of the firms and introduction of VAT. This shows that the introduction of VAT in this sector through which research was conducted did not affect the performance of these organizations.