VALUE ADDED TAX ADMINISTRATION AND ECONOMIC DEVELOPMENT: EVIDENCE FROM TANZANIA

Abstract

Despite the major reforms that have been undertaken by the country’s VAT administration, there is still a need for further analysis to determine whether the nation was able to achieve its full revenue potential from this tax or whether there were performance differences with other countries within the region. Thus, this study examines the extent to which the VAT administration enhance economic development in Tanzania. The data for this study was obtained from secondary sources including the statistics published by the country’s revenue authority, the national statistical office, and its central bank. The methods used included the descriptive analysis of the data, performance ratios for the country, as well as an OLS analysis to determine the relationship between VAT and GDP. During the period between 2010/11 and 2021/22, the country experienced an increase in its VAT receipts, growing from a total of TZS 1.73 trillion to TZS 6.29 trillion. Furthermore, the results of the regression model indicated that there was a statistically reliable relationship between the country’s VAT receipts and its real GDP, with an R-squared value of 0.9798 indicating a relationship between the two variables. Additionally, the model indicated that should the country experience a one-unit rise in its VAT tax receipts, its real GDP would experience an increase of 1.26 units. However, C-efficiency fluctuated between 17.2% and 23.4%, remaining substantially below the EAC regional average. The cross-country comparison further places Tanzania at the bottom of the selected group in VAT productivity (0.20), below Rwanda (0.29) and Kenya (0.28). The evidence therefore points to a revenue system that is growing in nominal terms but still loses efficiency through informality, evasion and weak voluntary compliance. The study recommends widening the taxable base, reinforcing enforcement, reviewing exemptions and deepening digital administration of VAT administration processes.