Assessment of tax incentives in attracting investment in Tanzania.

This study assesses, to what extent the various tax incentives provided by the government are important in influencing investment in Tanzania and hence lead to economic growth. Tanzania is ranked 8thof the top FDI recipients in Africa as it is one of the most attractive investment destinations in Africa. The study covers a period of 40 years and applies the Vector Error Correction Method (VECM) to assess the impact of tax incentives on investment growth. The empirical results show that tax incentive affects investment directly through adoption of newinputs of production, and transfer of superior technology.Surprisingly, the study finds that tax incentive has no effect on economic growth both in theshort-run and the long-run, which implies that tax incentive does not influence investmentindirectlythrough growth of an economy in Tanzania. As it is observed, the tax incentivespackage has been attractive to foreign investors with becoming the important factor in decidingbusiness locality. The government has to strengthen the execution of Public Private Partnership (PPP) with the key focus of solving other available challenges such as power supply and others.Otherwise, in-order to ensure that the current inflows of FDI continue for a longer period, thegovernment needs to guarantee investment in the country against nationalization andexpropriation. This can be done through participation in international corporations andmembership that protect and promote foreign investments.