An analysis of taxation potential in Tanzania

No Thumbnail Available
Journal Title
Journal ISSN
Volume Title
University of Dar es Salaam
The aim of this study has been to analyse the potentiality of the Tanzanian tax system using the elasticity method. The study emerged from the problem that for the past years, the estimated government recurrent revenue fell short of her anticipated recurrent expenditure. Attempts to bridge the gap have involved the revision of taxation and an increase in the rate of tax almost in every fiscal year. Apart from the fact that literature on public finance suggests that such recourse to frequent increase in the tax rates as a means of raising more revenue may have some disadvantages, this measure had no permanent effect since in many cases, the actual tax revenues collected have been deviating from the planned revenue. We feel the main reason behind this has been the inadequate information regarding the responsiveness of tax revenue with respect to income in the case of the tax system as a whole, and of different taxes with respect to their bases. Hence the aim of this study was to analyse the tax income elasticity of the tax system as well as factors which may be explaining the degree of responsiveness of major taxes. A regression analysis has been used to estimate elasticity of the tax system as a whole and of the major individual taxes which account for about 90 percent of the total revenue. A major finding of this study has been the low degree of elasticity of the Tanzanian tax system, during the period 1968/69-1978/79. The overall elasticity of the tax system has been found to be 0.82. A tax-wise analysis further revealed the weakness of the Tanzanian tax structure as few show elasticity greater than unitary. Export tax as a variable of value of export shows an elasticity of 2.1888, while import tax as a variable of value of imports shows an elasticity of 0.685. Corporate income tax as related to profit has elasticity of 1.108, and sales tax as related to the share of the manufacturing sector, and private consumption expenditure on beer, textile, sugar and cigarettes has elasticity of 1.309 and 1.058 respectively. Excise duties has been found to be the most inelastic of all types of taxes, the elasticity coefficient being less than 0.220 in all cases. Analysis of the determinants of elasticities of the major taxes reveals that the fairly inelasticity of the Tanzania tax system is partly due to the underdeveloped character of the Tanzanian economy with its comparatively large segment of low incomes which are unsuitable for direct taxation; and partly due to government policies to disengage from this state of underdevelopment. That is why it has been found practically impossible, in this study, to suggest means of enhancing income elasticity of the various taxes. In the absence of this possibility, further research on either taxation potential using other method, or the possibility of reducing recurrent expenditure or both are required.
Taxation, Forms, Tanzania
Rutayisire, J. N. (1982) An analysis of taxation potential in Tanzania, Masters dissertation, University of Dar es Salaam. Available at (