Effectiveness of tax incentives in promoting investments in Tanzania

Governments provide tax incentives to attract investment and promote economic activities for economic growth. The objective of this study was to evaluate effectiveness of tax incentives in promotion of investment in Tanzania The researcher adopted descriptive methodology in the study. 95 out of 452 Dar es Salaam investors, 26 consultants from consultancy firms and 24 government officers working with the Ministry of Finance and Economy, TRA, NDC, TIC and the National Bureau of Statistics were interviewed by using questionnaires. In the course of evaluating the effectiveness of tax incentives other relevant factors attributable to investments were also considered to enable the researcher to make precise conclusions on the study. It was established that non-tax factors such as opening up of the economy, proximity to market, political stability, etc are the primary determinants of investment growth and FDI inflows. To improve the investment climate and FDI inflow in the country the research recommends continuous improvement on physical infrastructure, human capabilities, access to vital utilities and stimulation of linkages between different sectors of the economy just to mention a few. However, although tax incentives are not effective, they cannot be ignored completely. Thus, improvements in the tax system, tax administration and re venue management are required.