The impact of taxation on the economic growth the evidence of Tanzanian economy

Abstract

The objective of this study was to investigate the impact of taxation on the economic development of Tanzania proxy by the gross domestic product (GDP). Taxation is a source of revenue or income to the government in achieving their macro-economic objectives in the areas of fiscal and monetary policies, the role of taxes in promoting economic activity and growth for Tanzanian government to effectively carry out its primary function and other subsidiary functions, it requires adequate funding through various sources of income, however taxes are the major one. This calls for a proper examination of the relationship between revenue generated from taxes and the economy. Therefore, this study seeks to evaluate the impact of taxation on economic growth for the period of 20 years from1999 to 2019. The study made used of secondary data obtained from the Central Bank of Tanzania and Statistical Bulletins for the relevant years. The hypotheses were tested using unit root test and regression analysis statistical. The study employed Gross Domestic Product (GDP) to measure economic growth as dependent variable and Personal Income Tax; Value added tax, corporate tax and custom duty were used to measure taxation policy as independent variables, linear multiple regression model was applied to examine the impact of taxation on economic growth. The results showed that income tax, value added tax and custom duty are the important factors for determining the GDP, meaning that taxation is negatively and statistically significantly influence economic growth in Tanzania. The implication on this is that taxation lowers the return on innovations and reduces the amount spent on research and development, which affect growth negatively. The policy implication is that, higher tax rates may be more distortionary and hence influence growth negatively while lower rates may generate revenues that are spent in productive ways.