An empricial analysis of tax capacity in Tanzania (1970-1999).

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University of Dar es Salaam
The study sets out to identify possible policy options through which Tanzania can maximize revenue collection to meet its expenditure needs within the context of a fixed budget constraint and given the prevailing economic conditions. Further, the study attempts to measure the tax capacity of Tanzania for the period 1970-1999 and the determinants of the tax share in GDP (a proxy of tax capacity). This study uses the model developed by Ghura (1998) for tax revenue determinants with minor refinement to make it more relevant to the Tanzania case. The study uses time series data for the period 1970-1999. The analysis suggests that by year 1999 Tanzania could only utilize 12 percent of its potential taxable capacity. It is found that over the period under investigation has revealed internal trade, hotels and restaurants (herein referred to as trade), manufacturing, finance and business services have been the major contributors of both direct and indirect tax revenue. In addition, tax policy and tax administration have been noted as underpinnings of tax capacity. It is recommended that Government work for increased investment in manufacturing sector, financial and business services and international trade, facilitate the "formalisation" of informal activities and assist domestic entrepreneurs to fairly participate competitively in these sectors so as to widen the tax net. There is also a need to review the usefulness tax incentive policy to foreigners and the existing individual income tax rates to make them taxpayer friendly, make TRA more efficient and effective, equip and support TRA staff training.
Taxation, Developing countries, Tanzania
Mongi, B. F. (2003). An empricial analysis of tax capacity in Tanzania (1970-1999). Masters dissertation, University of Dar es Salaam. Available at (