The Effects of Tax Policy on Economic Growth in Tanzania

Abstract

Tax policy has significant impact on economic growth. Good tax policy influence both positive economic growth and rapid growing competition in investments. This study sought to establish the effect of tax policy instituted by the Tanzania Revenue Authority on Tanzania’s economic growth. This study was supported by Ibn Khaldun theory of taxation, endogenous growth theory, and optimal theory of taxation. The study utilized a descriptive research design. Secondary semi-annual data was used in the research. The data was sourced from the Tanzanian Bureau of Statistics and the World Bank, as well as Tanzania Revenue Authority between 1992 and continuing through 2020. Statistical Package for Social Sciences Version 25 was used in the analysis. Statistical techniques such as descriptive statistics and multiple linear regressions were used. The findings were presented in the form of tables and graphs. From the descriptive statistics, the study concludes that economic growth of Tanzania averages at about 6% of GDP. The economy showed a general increase between 1996 and 2020 despite of high fluctuations within the period. The taxes in Tanzania between 1996 and 2020 showed an upward curve indicating an increase in the taxes within the period. Motor vehicle taxes, stamp duty, business license, export duty, fuel levy, and port charges showed a very high level of fluctuation within the period between 1996 and 2020. The findings show that taxes influence growth of an economy. Import duty exhibited positive regression coefficients while excise duty exhibited negative though insignificant coefficients. Further, the study found that income tax had a positive and significant regression coefficient against economic growth. Value added tax and other taxes like motor vehicle taxes, stamp duty, business license, export duty, fuel levy, and port charges having an inverse significant regressions coefficient against economic growth. This research concludes that tax policy influences the economic growth of Tanzania. This study concludes that import duty and income tax have a positive effect on the economic growth of Tanzania. On the other hand, the study concludes that excise duty has no effect on economic growth of Tanzania. Further, value added tax and other taxes like motor vehicle taxes, stamp duty, business license, export duty, fuel levy, and port charges possessed negative effects on economic growth of Tanzania. Government reviews its tax policy for optimal taxation which would improve the economic growth of the country. Research based on different variables, measures, period and utilizing a mixture of both primary and secondary (semi-annually) data ought to be done.