Implications of tax incentives on foreign direct investment in oil and gas industry in Tanzania

Tanzania employed both policies and legislative measures in attracting Foreign Direct Investment (FDI) inflows in the country. Evidence from the literature suggests that Tanzania is among the 10 biggest recipients of FDI in Africa Despite having in place impressive tax incentives provided by legal machinery Tanzania, inflow of FDI in oil and gas is still minimal. Thus, this study sought to assess the impact of tax incentives on FDI inflows in oil and gas industry in Tanzania. Specifically, the study addressed the following objectives. To ascertain the relationship between reduced corporate tax and inflows of FDI in oil and gas sector; to determine the relationship between tax holiday and inflows of FDI in oil and gas sector, to determine the relationship between accelerated depreciation allowance and the inflow of FDI in oil and gas sector, and to examine the relationship between the loss carry forward and inflows of FDI in oil and gas sector. Descriptive analysis technique and Tobit regression technique were used to assess the impact of tax incentives in attracting FDI inflows in oil and gas industry. The study used panel dataset for ten oil and gas companies covering the period of five years from 2015 to 2019. The data that were collected from audited financial statements, TRA, NBS, TIC and related previous studies. The findings revealed that accelerated depreciation has a negative significant effect on the FDI inflow in oil and gas sector. Also, findings revealed that loss carry forward has a negative significant effect on the FDI inflows in oil and gas sector. However, the study results indicated that there is positive relationship used corporate income tax rate and inflows of FDI in oil and gas industry but not statistically significant. On the other hand, it is revealed that tax holiday has a negative effect on the FDI inflow but not statistically significant. The study therefore recommends that government should examine closely and review the tax incentives to the oil and gas sector specifically the accelerated depreciation and the loss carry forward and find the way to improve it so as to attract FDI inflows in that sector. The study recommends that the future studies should examine the effect of tax incentives on other economic sectors apart from extractive sectors such as agriculture, this can provide a picture of whether the tax incentives can attract FDI inflows or they just increase costs to a particular Government. The future studies should also examine the granger causality between the FDI inflows and the tax incentives in oil and gas sector. They may help to identify the direction of causality that exists between the two variables.