Improving revenue mobilisation
The tax system in Tanzania operates substantially below potential, raising only around 12 percent of GDP in revenue, some three percentage points of GDP less than the average for low-income countries. Widespread exemptions and relatively weak tax administration are widely seen as the principal reasons for this low revenue productivity. IGC Tanzania is currently supporting research on compliance in the VAT system and on the impact of hand-held and other ‘electronic fiscal devices’ on the efficiency of the collection and administration of taxation. The Country Program welcomes further work at the microeconomic / firm level on the constraints to revenue mobilization. Given the pressures on the tax system to generate high revenues, the Country Program would also welcome work on assessing the marginal cost of funds (i.e. the distortions in the tax system) and on the political economy of revenue mobilization in Tanzania.