An evaluation of the tax policy reforms adopted by

Tanzania since the 1990s

Assignment Question
Using any Sub-Saharan African country of your choice, examine the various tax reform policies adopted since
the 1990s and critically evaluate the effectiveness of such policies in bridging the resource gap.

1. Introduction

output, however the discretionary tax

No matter what any country may want to do with

measures imposed between 1996/97 and

its tax system, or what anyone might think it should

2010/11 have adversely impacted the

do from one perspective or another (ethical,

revenue productivity of Tanzania. In

political, or developmental), what it does do is

addition

to

adverse

impacts

from

always constrained by what it can do (Bird, 2008)

reductions in discretionary tax rates and

Governments

have

myriad

of

widening exemption bases, the tax system

mechanisms at their disposal to generate

is subject to substantial tax evasion and

sufficient revenues for public purposes. In

avoidance.

Tanzania there is a need to mobilize more

revenues from sustainable sources, for the
adequate provision of public goods and
services.

This

study

presents

comprehensive analysis of tax reforms in

Tanzania since the 1990s, evaluating their
effectiveness in bridging the resource gap.

The paper is organized as follows. Section

2 briefly reviews the theoretical and
conceptual

frameworks

relevant

to

evaluation of tax reforms - providing

insights

into

various

approaches,

institutional guidelines and objectives.

Section 3 presents the sources of data, and

The main findings of this study are that

methodology. Section 4 and 5 present

despite undertaking numerous reforms

trends in the tax system and the results,

since the 1990s, the tax revenues and other

respectively. Section 6 provides a brief

revenues sources have been insufficient to

summary and discusses the conclusions of

meet the needs of the government. The

the study.

buoyancy and elasticity of the total tax

system, estimated at 1.18 and 1.30
respectively, reflect that total taxes are
desirably responsive to changes in national

2. Theories and conceptual frameworks

definition of tax bases and clarifications of

2.1 Definitions and key concepts

legal statute, to a complete redesign of the

Taxes are compulsory and unrequited

receipts collected by a government in
order to finance the provision of public

tax system (Bird, 2004; HILL, 2005). This

paper focuses primarily on major tax
reforms.1

goods and services (IMF, 2008). The

Additional revenue from taxation may be

imposition of a tax is typically associated

obtained

with a type of activity, the basis of which

measure changes of the tax system or the

varies across countries. The common bases

automatic

on which taxes are imposed are as follows:

characteristics inherent in the various tax

incomes and profits, property, goods and

components. The response of tax revenue

services, and international trade.

growth to changes in national output

Reform is concerned with [making]

changes in something, especially an
institution or practice, in order to improve
it (Oxford dictionaries, 2013). Thus, tax
reforms refer to changes related to the tax
system; however, whether these changes
are expected to improve the system is a
value judgment. The normative basis of
tax reforms subjects the definition thereof
to the interpretation of the audience or
users. As such, reforms may range from
minor changes in particular tax rates, re-

through

growth

discretionary

(or

tax

built-in)

growth is measured by tax buoyancy and

tax elasticity. Tax buoyancy measures the
total response of tax revenue to output,
while tax elasticity measures the built-in
responsiveness of taxes in the absence of
discretionary changes. The total response
is thus comprised of the discretionary and
built-in responsiveness of a tax to output
(Jenkins, Kuo, & Shukla, 2000). An elastic
tax system, with elasticity greater than or
equal to unity, is desirable relative to an
1 Major tax reforms are not always easily
distinguishable from the minor changes that relate
to a tax system, however an investigation of this
nature is beyond the scope of this study.

inelastic system; this provides a sustained

are made - acknowledging the influence of

source of finance for the government

interests, intentions, and ideas.

without the need for frequent discretionary

A comprehensive evaluation of a tax

tax measure changes.

system should explore various facets of the

2.2 Theories and conceptual frameworks

aforementioned

The design and assessment of a tax system

consideration should be given to the

is driven by the adopted perspective and

objectives and tradeoffs of tax policy

uniqueness of the context. Bird (2004)

decisions, within the context of political

categories four distinct approaches to tax

and value judgments. The four canons of

reform. The public economics approach

taxation, postulated by Adam Smith in The

adopts

in

Wealth of Nations, address the need for

advocating maximization of social welfare,

characteristics of a good tax system.

while balancing (and trading off) the

Smiths (2007) canon of equality or equity

representative

efficiency

concerns economic justice and stipulates

objectives of society. The macroeconomic

that the imposition of tax should be in

approach

the

proportion with the ability of the taxpayer

microeconomic dynamics and internal

to pay, while the canon of certainty serves

structures of the tax system, placing

to discourage arbitrariness in the taxes

emphasis on the impact of taxes on real

levied. The canon of convenience seeks to

aggregates. The administrative approach

minimize inconveniences on the taxpayer,

addresses the administrative capacity and

and

constraints of a tax system. The political

encourages

approach

institutional

administrative and compliance costs, both

context in which tax policy considerations

to the taxpayer and the state. The

normative

equity

perspective

and

deviates

appreciates

from

the

lastly,

approaches.

the
the

canon

of

Due

economy

minimization

of

comprehensibility of these canons comes

at the expense of comprehensiveness,

Neutrality concerns the minimization of

especially in the event of conflicting

distortions in the tax system, particularly

objectives (Mirrlees et al, 2011).

through

Further objectives have been explored to

taxpayers and the similar treatment of

supplement the four canons. Productivity

similar

underlies the fiscal adequacy efforts of the

redistribution, procedure, and legitimate

state,

discourages

expectations contributes to the overall

complexity in the administration and

neutrality of a tax system. A simple and

interpretation of taxes - ensuring ease of

plain tax system, intelligible to common

understanding and transparency (Waris,

understanding, is better than a complex

2008; Salani, 2003). The efficiency of a

one; simplicity and neutrality discourage

tax system aims to minimize market

tax avoidance and encourage transparency.

distortions

Stability

and

Simplicity

and

negative

impacts

on

the

equitable

activities.

encourages

treatment

Fairness

compliance

of

in

and

welfare, while flexibility maintains that

enables long-term planning; furthermore,

taxes should be adaptable to economic

certainty in the tax system is likely to

fluctuations and new conditions (Mirrlees,

translate to revenue stability for the

2011). Diversity discourages dependence

government. The institutional guidelines

on too few sources for public revenue.

serve as benchmarks for the evaluation of

Mirrlees

et

al.

(2011)

argue

that

institutional guidelines may be helpful for

tax design and in the assessment of a tax
system. The study proposes the following
guidelines: i) neutrality, ii) simplicity, and

tax policy, though it is important to note

that,

separately,

they

may

not

be

appropriate principles in themselves and

their interplay and prioritization is subject
to value judgment.

iii) stability, to be evaluated in the context

This paper explores the various approaches

of

to tax reforms, and Figure 1 depicts the

given

distributional

outcome.

framework to be used in this study,

study

highlighting the institutional guidelines

personal and corporate income taxes, and

and

The

domestic and import VAT. The sample

effectiveness of tax reforms in bridging the

consists of annual nominal data for the

resource gap is expressed by the revenue

period 1996/7 to 2010/11, and estimations

adequacy guideline.

were done in logarithmic form; thus,

corresponding

objectives.

investigates

the

disaggregated

coefficients are interpreted as elasticities.

Fi

Following Choudhry this paper uses the

Divisia Index (DI) approach to estimate
Buoyancy

Fairness

Revenue
Adequacy

Neutrality

Elasticity

Efficiency

Flexibility

Economy in
collection

Convenience

Certainty

Simplicity

Stability

Transparency

Revenue
stability

gure 1. Framework for evaluation

the buoyancy and elasticity of tax revenues

(for a comprehensive proof, see Choudhry,
1979). This method is utilized due to its
minimal data requirement and flexibility in

3. Data and Methodology

estimation. The DI approach separates the

This study will be conducted using the

total

relevant data, obtained from the Tanzania

discretionary measures and automatic (or

Revenue Authority (TRA) and the IMFs

built-in) responses of tax revenues to GDP

International Financial Statistics (IFS)

growth, analogous to the shift in the

database. Of interest are the time series of

production function caused by technical

major tax categories: total tax revenue,

changes (or technical factor productivity).

income taxes, sales tax/VAT, import taxes,

Thus, the DI adjusts the estimated

excise duties; and their corresponding

buoyancy of tax revenue to obtain the

bases: gross domestic product (GDP),

elasticity. The buoyancy estimates are

household consumption, and total imports

obtained

of goods and services. In addition, this

revenue data. A limitation of the Divisia

effect

on

from

total

revenue

unadjusted

into

historical

index method is that it tends to conceal

year-to-year effects of discretionary tax

r^ =

measures; furthermore, it precludes the

estimation of the elasticity of components
of tax revenue as it is assumed that each
base represents its own tax category

lnD (n)
x ( n)
ln
x ( 0)

[ ]
[ ]

LnD ( n )=ln

(3)

k
n
T T i ,t 1 x i , t
T (n)
i, t

T (0) i=1 t=1

Tt
x i ,t 1

(4)

4. Trend in the tax system of Tanzania

(Choudhry, 1979 pp.102 - p.104)

Tanzanias
Traditionally, the buoyancy or elasticity of
a tax can be obtained by a linear regression
equation of the form:

T t =a x

has

performed

relatively well over the period, 1996/7 to

2010/11; discerned by analyzing various
key macroeconomic and fiscal indicators

economy

(1)

a = Constant coefficient
= Buoyancy coefficient
Tt = Total tax revenue, at time t
xt = National income, or GDP, at time t
= Stochastic error

(see Appendix A1). Gross Domestic

Product (GDP) has increased steadily over
the period at an average annual rate of
7.2% - ranging from 3.8% (1997/8) to a
high of 18.9% (2000/2001). However,

ogarithmic transformation of equation (1)

yields:

lnT t =lna+ ln x t + (2)

GDP per capita declined at an average

annual rate of 2.3% over the same period.
Inflation and money supply2 growth reflect
erratic behaviour, with average annual

Equation 2 provides an estimate of tax-

rates of 7.7% and 20.6%, respectively; and

buoyancy due to its double-log form

a low and persistent income velocity of

The estimates of elasticity are obtained by

money reflects Tanzanias financial depth.

adjusting the buoyancy as:

Tanzania has consistently run a current

account

deficit,

deteriorating

from

2 Broad Money (M3)

US$485.9million

to

Since the 1990s, domestic financing in

US$3.95billion (2010/11); furthermore,

Tanzania has been insufficient to meet the

the

needs of the government (see, Figure 2).

exchange

(1999/00)

rate

(T.Sh/US$)

has

depreciated at an average rate of 7.1%

The average domestic financing3 deficit

The tax system in Tanzania has undergone

over the period 1996/7 to 2010/11 was

major reforms during the period following

T.Sh653.1billion

independence in 1964, and leading up to

US$509.7million).

the 1990s; notably, but not limited to, the

reflects

promulgation of the Income Tax Act of

T.Sh666.6billion

1973 and a broadening of the sales tax,

US$517.3million). Table 1. Provides a

under the Sales Tax Act of 1969. Reforms

breakdown of the budgetary revenues and

up to this point were motivated by the

expenditures.5 Tax revenue was the biggest

prospect of raising revenue productivity,

contributor to total domestic revenue,

equity, and less pronounced protectionist

followed by grants and non-tax revenue, at

efforts, however low elasticities and

average annual rates of 70.2%, 23.3%, and

buoyancies were realized primarily as a

6.4%

result of large tax exemptions, low

financing-to-GDP remained in deficit over

compliance and tax evasion (Osoro, 1995).

the period. 2005/06 reflects a considerable

The implementation of major economic

deficit due to debt cancellation by the IMF

reforms in the 1980s, driving Tanzania

Multilateral Debt Relief initiative (MDRI)

from a socialist regime towards market

(IMF, 2006).

liberalization, was

motivated

by the

economic and fiscal crises of the time

(Nord et al. 2009).

an

(approximately.
The overall balance4

average

respectively.

deficit

of

(approximately

The

domestic

3 Domestic financing represents the net of

domestic revenue (excluding grants) and domestic
expenditure (excluding foreign financed
development expenditure).
4 Overall balance represents the net of total
expenditure (and foreign financed expenditure) and
total revenue (and grants).
5 For disaggregated central government operations,
see Appendix A2

Numerous

tax

been

In 1995 the government of Tanzania

undertaken since the early 1990s, ranging

established the semi-autonomous Tanzania

from

to

Revenue Authority (TRA), to undertake

administrative and institutional changes

the management and administration of the

(Fjeldstad & Heggstad, 2011; Sennoga,

tax system. The establishment of the TRA

Walker, Lim, Kariuki, & Kiragu, 2010).

was followed by a series of successive

Total tax revenue grew at an average

administrative reforms, or Corporate

annual rate of 18.3% between 1996/7 and

Plans. The First Corporate Plan took

2010/11. Between 2003/4 and 2008/9 total

place between 1998/99 and 2002/03, with

taxes grew at exceptional rates, between

the

18.7% and a period high of 33.1%. Tax

building, revenue generation and capacity

revenue, measured as a proportion of gross

enhancement. The Second (2003/04 -

domestic

2006/07) and Third (2008/09 - 2012/13)

measure of the tax burden imposed on a

Corporate Plans aimed to increase revenue

nation.

ratio

collection and integrate TRA operations.

averaged 12.6% over the period 1996/7 to

Furthermore, seeking to improve customer

2010/11. The tax ratio exhibits an upward

services, promote tax compliance, and

trend, rising from 11.1% to 14.8% over the

improve staff performance.

period (see, Figure 2). Non-tax revenues,

The TRA advanced the information and

as a proportion of GDP, remained low over

communications technology (ICT) based

the same period at an average of 0.9%,

modernization

marginally falling from 1.4% to 0.8%,

through the formulation of information

while grants-to-GDP rose from an average

systems policies and the introduction of

rate of 2.5% to 5.5%.

information systems for the management

changes

reforms

in

product,

The

total

tax

may

have

policy

represent

Tax-to-GDP

express

objective

plans,

of

from

institution

2004/05,

Over

the

period
1996/7

to

2010/11,
income

tax

has been the

best
performing
tax, growing
at

an

average

of

21.5%

per

annum;
closely
and administration of the tax system and

followed by excise duties, growing at

its supporting functions. In an effort to

21.1% and 20.5% per annum, respectively.

improve the quality of public services the

Import taxes and sales/value added tax

government of Tanzania embarked on the

(VAT) grew at average rates of 17.6% and

decentralization

government

17.3%, respectively. Figure 4 depicts the

authorities. The elimination of nuisance

breakdown of major tax categories over

taxes, in 2003, increased the reliance on

the period, highlighting the Tanzanian

local governments on central government

governments heavy reliance on VAT and

transfers, however, the adoption of a

income taxes. .

formula-based system in 2004, improved

Value added tax was introduced in 1998,

intergovernmental grants.

reflecting

of

local

move

towards

the

10

modernization of the tax system and

average rate of 16.9% between 1996/97

transition from the distortionary sales tax

and 2002/03. Personal income taxes grew

(Sennoga et al., 2010). In addition, a

at an average annual rate of 24.4% - 22.0%

number of discretionary tax measures were

pre-reform

and

undertaken between 2003/04 and 2010/11,

Corporate

taxes

to raise revenue, reduce compliance costs

substantially, growing at an average rate of

and procedures; reduce transportation and

8.2% pre-reform and 27.8% post-reform;

mining exploration costs. Import VAT

averaging at 19.4% from 1996/7 to

grew at an average annual rate of 22.5%,

2010/11 Income tax, as a proportion of

while domestic VAT grew at 20.8% over

GDP grew steadily from 2.7% to 5.0% per

the period, 1996/7 to 2010/11. The VAT-to-

annum, averaging 2.6% pre-reform and

GDP ratio grew marginally over the

4.1% post-reform; while constituting a

period, from 4.3% to 5.0%, however the

fairly substantial proportion of total tax

share of total tax revenue declines from

revenue ranging from 24.2% (1996/7) to

39.0% to 34.6%.

34.8% (2010/11).

A new Income Tax Act was promulgated

The customs tariff structure was simplified

in 2004, in an effort to broaden the

in 1992, from 50 rates to 5 rates (Sennoga

domestic tax base and enhance the

et al., 2010); addressing concerns of tax

neutrality of income taxes. Discretionary

evasion and avoidance (Osoro, 1995). In

changes widened exemptions, introduced

2004, the adoption of the East African

concessionary corporate tax rates and

Community (EAC) Customs Management

reduced the marginal personal income tax

Act advocated for the harmonization of

rate for the lowest band. Post-reform

customs policies and transition towards

2003/4 to 2010/11 income tax grew at an

common external tariffs.

annual average rate of 25.0%, up from an

grew at an average annual rate of 15.3%

26.2%

post-reform.

were

improved

Import duties

11

over the period, 1996/97 to 2010/11. The

The results in Table 2 reflect the growth

import tax-to-GDP ratio remained fairly

Table 2.Growth, Buoyancy, and Elasticity of Total Tax

Revenues in Tanzania, 1996/97 - 2010/11

steady over the period at an annual average

of 1.9%, increasing from 2.1% to 2.2%,

Average annual percentage (%)

Discretionary growth
Automatic growth
Total growth

(1.67)
18.30
16.63

while the share of total revenue declined

GDP growth

14.84

from 18.8% to 15.7%. From 1996/97 to

Buoyancy
Elasticity

1.18
1.30

2002/3 import taxes grew at an average

effects, buoyancy, and elasticity relating to

rate of 10.6%, with an improvement from

total tax revenues, over the period 1996/97

2003/04 to 2010/11 at 23.0%.

to 2010/11. The discretionary tax measures

The Excise (Management and Tariff) Act

in Tanzania reduced the total tax revenue

was enhanced in 2006, to facilitate revenue

growth by an average annual rate of

generation. Excise duties on imported

1.67%. This may be as a result of the

goods grew at an average annual rate of

numerous reductions in tax rates and

35.4% over the period, while domestic

widening exemptions over the period, in

duties grew at 14.3% p.a. The share of

addition to the persistence of tax evasion

excise taxes, as a proportion of total tax

and avoidance.

revenue, remained fairly steady at 18.0%

revenue is estimated at an average annual

and 18.2% in 1996/7 and 2010/11,

rate of 16.63%, while average built-in

respectively.

The excise-to-GDP ratio

growth contributed 18.3% per annum. This

increased marginally from 2.0% to 2.6%,

result implies that the growth over the

however the post-reform average, 2006/7

period is primarily driven by the automatic

to 2010/11 was higher than the pre-reform

growth

average, 2.6% up from 1.6%.

empirical results support the stylized facts

in

Overall growth in tax

revenues.

The

estimated

relating to the tax system.

5. Results

12

The elasticity of total tax revenue is

expected to be larger than the buoyancy,
resulting from the decrease in total

Table 3. Estimates of buoyancy for

different categories of tax, 1996/97 2010/11
Category
Income tax
Individual income tax
Corporate income tax
VAT
Domestic VAT
Import VAT
Import tax
Excise tax

revenue growth driven by discretionary tax

buoyancy, and elasticity, of total tax

measures.

elasticity

revenue. Highly buoyant VAT components

coefficient of 1.30 indicates that the tax

(domestic and import VAT) imply that the

system was elastic over the period under

buoyancy of aggregate VAT is being

study,

buoyancy

lowered by other indirect taxes (I.e. Motor

estimate of 1.18 further reinforces the

Vehicle Taxes, Stamp duty, Departure

adverse

impact

charges & Business License).

measure

changes.

The

however

estimated

the

of

lower

discretionary
All

the

tax

estimated

regression models performed well in terms

of goodness of fit (see Appendix A5).
The contributions of the components of
total tax revenue buoyancy were also
analysed (see Table 3), with respect to
GDP. All the observed tax components are
greater than unity and thus highly buoyant,
reflecting the impact of discretionary
changes to tax measures. The largest
contribution to the buoyancy of tax
revenue is from income taxes, with a
particular emphasis on individual income
taxes. Import taxes and VAT are primarily
responsible

for

lowering

the

overall

6. Summary and conclusions

The aim of this study was to present a
comprehensive analysis of tax reforms in
Tanzania since the 1990s. Over the period
1996/97 to 2010/11 the

government

experienced a persistent and increasing

resource gap. Estimated elasticity and
buoyancy, of 1.18 and 1.30 respectively,
reflect desirable responsiveness of total
taxes to national output, with income taxes
contributing the largest share of the
buoyancy. The reforms undertaken have
resulted in taxes growing substantially
over the period under study, while the taxto-GDP ratio has remained moderate over
13

the period. The tax system reforms reflect

neutrality,

stability,

and

simplicity;

however there is much scope for the

revenue adequacy efforts and capacity to
be improved.
7. References
Bird, R. (2008). Tax challenges facing
developing countries. Institute for International
Business Working Paper, (9).
Bird, R. M. (2004). Managing Tax Reform.
Bulletin for International Fiscal Documentation,
58(2), 4255.
Choudhry, N. N. (1979). Measuring the
Elasticity of Tax Revenue: A Divisia Index
Approach. Staff Papers-International Monetary
Fund, 26(1), 87122.
Fjeldstad, O.-H., & Heggstad, K. K. (2011). The
tax systems in Mozambique, Tanzania and
Zambia: Capacity and constraints. CMI Report,
2011(3).
HILL, G. (2005). TAX REFORM: A TOWER
OF BABEL; DISTINGUISHING TAX
REFORM FROM TAX CHANGE. Journal of
the Australasian Tax Teachers Association, 1(2).

Mirrlees, J., Adam, S., Besley, T., Blundell, R.,

Bond, S., Chote, R., & Gammie, M. (2011). Tax
By Design - The Mirrlees Review. Oxford
University Press.
Nord, R., Sobolev, Y., Dunn, D., Hajdenberg, A.,
Hobdari, N., Maziad, S., & Roudet, S. (2009).
Tanzania: the story of an African transition.
Osoro, N. E. (1995). Tax reforms in Tanzania.
African Economic Research Consortium.
Oxford dictionaries. (2013). Reform: definition
of development in Oxford dictionary (British &
World English). (Oxford dictionaries,
Ed.)oxforddictionaries.com.
Salani, B. (2003). The Economics of Taxation.
MIT Press.
Sennoga, E., Walker, R., Lim, C., Kariuki, E., &
Kiragu, K. (2010). Domestic Resource
Mobilization for Poverty Reduction in East
Africa - Tanzania Case Study. (D. Gaye & C.
Baumont-Keita, Eds.). Nairobi: African
Development Bank Group.
Smith, A. (2007). An Inquiry Into the Nature and
Causes of the Wealth of Nations. Harriman
House Limited.
Waris, A. (2008). Taxation Without Principles: A
Historical Analysis of the Kenyan Taxation
System. Kenya Law Review, 1, 272304.

IMF. (2006). United Republic of Tanzania: Fifth

Review Under the Three-Year Arrangement
Under the Poverty Reduction and Growth
FacilityStaff Report; Staff Statement; Press
Release on the Executive Board Discussion; and
Statement by the Executive Director for the
United Republic of Tanzania (Working Paper No.
06/138). Washington, D.C.: International
Monetary Fund.
IMF. (2008). Financial Programming and
Policy. International Monetary Fund (IMF).
Jenkins, G. P., Kuo, C.-Y., & Shukla, G. (2000).
Tax Analysis and Revenue Forecasting.
Cambridge, Massachusetts: Harvard Institute
for International Development, Harvard
University.

14

7. Appendices
A1. Selected Macroeconomic indicators
A2. Central Government Operations
A3. Central Government Operations,
percentage of GDP
A4.Tax structure and revenue structure
A5. Estimates of aggregate and individual tax
buoyancy equations

15

A1. Selected Macroeconomic indicators (1996/97 - 2002/03)

National accounts and prices
Gross Domestic Product (Nominal, Billion T.Sh)
Gross Domestic Product (Real 2005 Prices, Billion T.Sh)
Real GDP growth (percentage, %)
Household consumption (Nominal, Billion T.Sh)
GDP/Capita (Real 2005 Prices)
GDP/Capita growth (percentage, %)
GDP Deflator (2000 prices)*
CPI
Inflation (percentage, %)
Money indicators
Velocity of Money (GDP/M2)
Broad money (M3, Nominal, Billion T.Sh)
Growth in M3 (percentage, %)
M2 (Nominal, Billion T.Sh)
Growth in M2 (percentage, %)
External sector
Imports of goods and services (Nominal, Million US$)
Export of goods and services (Nominal, Million US$)
Trade Balance (Nominal, Million US$)
Current account balance (Nominal, Million US$)
Balance of payments (Nominal, Million US$)
Nominal exchange rate (T.Sh/US$)
Exchange rate depreciation (+, percentage, %)
Memorandum items
Population size (Number of persons, millions)
Pop. growth (percentage, %)
Imports of goods and services (Nominal, Billion T.Sh)
Export of goods and services (Nominal, Billion T.Sh)

1997

1998

1999

2000

2001

4 703.5
8 968.9

5 571.3
9 311.1
3.8
4 909.3
432.3
(6.8)
59.8
68.2
12.8

6 432.9
9 640.4
3.5
5 667.4
389.8
(9.8)
66.7
73.6
7.9

7 268.4
10 125.7
5.0
6 069.6
371.9
(4.6)
71.8
78.0
5.9

9 100.3
12 039.0
18.9
6 822.5
393.6
5.8
75.6
82.0
5.1

10 44
12 90

6.0
927.1
13.3
760.4
11.0

6.3
1 027.0
10.8
844.9
11.1

6.0
1 217.6
18.6
972.1
15.0

6.5
1 397.7
14.8
1 093.6
12.5

1 87
3
1 00
(

1 974.3
1 246.4
(727.9)

2 353.9
1 126.3
(1 227.6)

2 286.9
1 189.2
(1 097.7)

612.0

665.0
8.7

745.0
12.0

2 095.4
1 331.0
(764.5)
(485.9)
(86.3)
800.0
7.4

2 211.0
1 766.7
(444.3)
(237.2)
(809.6)
876.0
9.5

2 14
1 89
(24
8
31
96
1

31.6

32.4
2.5
1 565.3
749.0

33.2
2.5
1 703.8
885.9

34.0
2.5
1 676.3
1 064.8

34.9
2.6
1 936.9
1 547.6

3 968.1
463.9
52.4
60.5

5.7
818.1
685.0

1 208.3
762.8

Sources: IMF, MOF and BOT

16

7 51
37
(
8
8

2 07
1 83

A1. Selected Macroeconomic indicators (2003/04 - 2010/11)

2004
National accounts and prices
Gross Domestic Product (Nominal, Billion T.Sh)
Gross Domestic Product (Real 2005 Prices, Billion T.Sh)
Real GDP growth (percentage, %)
Household consumption (Nominal, Billion T.Sh)
GDP/Capita (Real 2005 Prices)
GDP/Capita growth (percentage, %)
GDP Deflator (2000 prices)*
A2.
CPICentral Government Operations
1997
1998
Inflation (percentage, %)

1999

Revenue
and grants
705.4
742.2
Money indicators
Velocity of Money (GDP/M2)
Domestic Revenue
590.0
622.8
Broad money (M3, Nominal, Billion T.Sh)
Growth in M3 (percentage, %)
1.Tax revenue
523.3
581.5
A3.
Government
Operations, percentage of GDP
M2 Central
(Nominal,
Billion T.Sh)
199126.7199 151.1
199
GrowthIncome
in M2 (percentage,
%)
Tax
7
8
9
PAYE
38.7
48.3
External sector
Corporate
55.0
65.3
Revenue
grants
15. US$)
13.
13.
Imports ofand
goods
and services (Nominal, Million
Individual
9.4
10.1
0 US$)3
8
Export of Other
goods and services (Nominal, Million
Revenue
12. 23.611.2 27.4
11.1
Trade
Balance
(Nominal,
Million
US$)
Sales tax/VAT
226.0
5203.9
Current account
balance (Nominal, Million US$)
Domestic
67.1
1.Tax
revenue
11.1
10. 61.8
10.
Balance
ofImports
payments (Nominal, Million US$)
59.5 4 83.80
Nominal exchange
rate
(T.Sh/US$)
Other
IncomeVAT
Tax
2.7 77.32.7 80.4
2.5
Exchange
rate duty
depreciation (+, percentage, %) 94.2
Excise
Sales tax/VAT
4.3
4.1 101.7
4.5
Domestic
Excise Duty
2.0 61.91.8 78.8
1.3
Memorandum
items
Import
Import Duty
2.1 32.31.8 22.9
1.6
Population
sizetaxes
(Number of persons, millions) 98.5
Import
Refunds
Accounts
- 102.8
Pop. growth
(percentage,
Import
duties %)
85.4
92.2
Imports ofOther
goods and services
T.Sh)
charges(Nominal, Billion
2. Non-Taximport
Revenue
1.4 13.10.7 10.6
1.1
Export of
goods
and
services
(Nominal,
Billion
T.Sh)
Refunds Accounts
3. Grants
2.5 - 2.1
2.6
2. Non-Tax Revenue
66.7
41.3
Sources: IMF,
MOFfrom
and BOT
Proceeds
privatization
Total expenditures
15. 24.7 15.
14.
Other
5 42.0 4 41.34
1. Recurrent Expenditure
12.115.4 12. 119.4
12.
3. Grants
9
0
3
2. Development Expenditure
2.6
3.3
2.1
Domestically financed
0.4730.90.4 856.2
0.3
Total expenditures
Foreign financed
2.2
2.9
1.8
1. Recurrent Expenditure
606.3
669.6
Development
Expenditure
Net2.domestic
financing
(3.4124.6(4.6 186.6
(3.6
) 20.2 ) 24.0 )
Domestically financed
Overall balance
(0.5104.3(2.0 162.6
(0.7
Foreign(accrual)
financed
)
)
)

885.1

Net domestic financing

(36.6)

(94.8)

Overall balance (accrual)

(25.5)
(140.9
)

Overall balance excluding grants

(70.8)
(114.0
)
(233.3
)

715.2
642.2
200
161.9
0
55.6
65.3
15.
10.9
4
30.0
11.5
289.8
114.5
10.
114.2
3
61.2
2.9
85.3
4.3
57.9
1.3
27.4
1.8
105.1
(0.3
99.8
)
5.3
1.3
3.973.0
7.0
16.
66.0
1
11.1
169.9
5.0
0.3
927.7
4.7
791.2
136.5
(4.8
)
18.8
(0.7
117.7
)

(42.6)
(212.5
)

2005

2006

2007

2008

15 965.3
17 941.3
20 948.4
15 965.3
17 040.9
18 259.0
7.4
6.7
7.1
10 581.9
12 195.2
14 231.1
364.2
340.9
357.1
0.8
(6.4)
4.7
100.0
105.3
114.7
100.0
107.3
114.8
2000
2002 5.02003
2004
2005
7.3
7.0
In billions of T.Shillings
1 098.
1 253.
1 450.
1 864.
1 952.3
2 781.8
1
25.0
2
5.1 0
4.2
4.1
817.8
959.8
1 066.
1 241.
1 457.4
1 788.9
2 778.8
3 153.8
4 250.7
5 164.5
7
7
18.0
13.5
34.8
21.5
725.2
857.9
962.2
1 130.
1 340.9
1 630.4
1 525.6
1 864.7 0 2 469.5
2 918.8
200
2003
200 22.2
2005
200
16.3 259.8
32.4 2007 516.6
18.2
213.8 200219.2
316.8 2006
410.5
1
2
4
8
74.3
94.0
118.2
141.6
185.7
236.9
In percentage of GDP (%)
55.1
47.4
58.0
79.9
110.6
154.5
14.
14. 3 344.2
15.7
14.
17.9
12.5
18.3 6 915.4
21.
12.3
13.4
14.54 204.316.0 5 115.5
18.9
26.6
1
2 2 521.2
52 944.6
6
3
233.2
4
078.9
79.3 12.595.3 13.7 98.515.
10.72.0 10. 64.4
10.6 69.1
10.
11.7
(823.0)
(1
259.7)
(1
882.3)
(2
836.5)
311.9
406.0
484.3
574.5
756.5 3
8
5 353.0
9 (844.4)
(365.8) 165.9
(1 174.0)
(1287.3
714.7)
127.0
140.0
201.5
229.2
9.7
9.5 264.8
9.6
10.(228.7)
10.7
11.4
12.7 404.6
14.
460.7
124.7
190.9
215.1
256.7
313.3
443.4 1
1
1
089.0
1
129.0
1
252.0
1
245.0
25.0
26.0
2.460.3 2.5 22.1
2.6
2.9
3.2
3.632.0 4.1 25.8
4.5
4.9 179.1
3.7
10.9
(0.6)
91.7
155.4
189.5
215.5
3.9
3.9
4.0
4.1
4.7
4.9
4.4 240.4
4.8
72.8
85.3
1.767.0 1.7 69.0
1.6
1.5
1.5
1.592.9 2.3 110.3
2.7
104.2
122.7 1.7 130.1
1.724.7 1.5 86.4
1.5 106.3
1.5
1.2
1.5
2.2
37.8
38.8
39.9
41.1
128.8 (0.3156.9
175.7
208.8
(0.3
(0.3 152.4
(0.5
(0.5)
(0.5)
(0.5) 190.7
(0.5
2.7
2.8
2.8
2.9
105.5
115.7
139.2
112.5
)
)106.7 ) 97.9)
)
3
641.8
4
746.6
6
404.6
8
609.7
54.5
60.1
1.123.3 1.0 50.2
0.9
0.8
1.0
1.169.7 1.0 78.2
1.1
2 745.6 (35.0)3 324.4
4 048.0
5 078.2
(36.4)
3.2(20.9) 3.7 (26.6)
5.1
3.5
6.2
-(68.4) 4.6 (73.9)
6.3
92.5
101.8
104.5
111.8
116.5
158.5
- 21.
14. - 14. 26.7
16.4
18.
20.326.7 9.8 21.4
104.5
111.8
106.7
158.5 0
492.5 0 75.1
0
11.2
12.3 383.5
12.
12.6
280.3 10.293.4
622.3 17.0
494.9 15.0 993.013.
7
7
7
3.1
4.1 1 462.
5.3
9.7
6.4
7.3
1 168. 3.3 1 307.
17.7
989.
0.4 8 0.5
0.8
1.08
1.5 5
3.6
2.3
2
2 516.9 2.43 248.4
2.8
2.8 1 021.
3.3 1 118.
4.3
6.1
4.0
5.0
16.2
488.
808.9
0
2
6
1 780.1
2 017.5
359.9 (3.9286.3
500.9 (17.8
736.8 (10.11 230.9
(3.9
(6.7 344.6
(8.0
(10.2
(8.1
)
) 35.1 ) 50.2)
)
)
) 239.7 )
19.4
95.7
133.0
(0.3
(0.7 294.4
(3.6
(2.5)
(14.2
0.6
340.5 0.2 251.2
405.2
603.8 (3.1) 991.2
)
)
)
)
(101. (342.6
(10.5)
(96.2)
7)
)
(455.7)
(468.3)
(125.5
(70.7)
(54.0)
(12.6)
)
(564.6)
(466.5)
(351.0
(347.
(396. (747.8
(1 059.
(1 459.
)
4)
1)
)
5)
5)

24 781.7
19 616.8
7.4
16 460.1
388.1
8.7
126.3
126.6
200610.3

13 971.6
14 869.4
7.8
9 352.7
361.3
0.1
94.0
95.2
20014.7

Sources: IMF, MOF and BOT

17

2 146.5

28
20
18

2007

3 724.4

4.0
2 146.5
2 752.9
6 223.6
7
20.5
1 955.1
2 543.3
3 580.8
4
2009 22.72010
645.7
863.6

291.9
414.3
205.8
269.6
20.3
8 036.919.432.17
32.1
5 209.6 147.64
115.9
15.8
(2
827.2)15.1
(2
871.9
928.4
(2
564.1)
(1
334.3
421.3
14.9148.014.3
507.7
470.9
1 196.0 36.31
30.0
4.9
4.7
(3.9) 491.6
264.0
5.1
4.9
135.1
176.0
2.7
2.6
128.9
315.6
2.3
2.1
42.3 366.4
261.3
(0.5)
(0.5)
183.6 2.9 254.1
9 612.1 112.39
77.8
0.9
0.7
6 230.7 (106.7)
6
(87.9)
4.5
4.4
191.4
209.6
24.125.3 191.4
209.6
16.617.2
971.5
7.6
3.2
4 788.5
4.3
3 054.0
1(11.5
734.5
)
641.8
1 (3.9)
092.7
(1 549.
3)
(2 642.
0)
(2 642.
0)

8.1
45.0474.7
3.1
3 137.5
1 337.2
(15.2
)
503.3
(5.9)
833.9

(887.9)

(750.3)
(1 721.
8)

A4.Tax structure and revenue structure

Total tax revenue

Income Tax
Individual income tax
Corporate income tax
Other income taxes
VAT
Domestic VAT
Import VAT
Other Domestic taxes
Excise Duty
Import
Import Duty
Other Import charges

199
7

199
8

199
9

200
0

200
1

100
24.
2

100
26.
0
10.
1
11.
2
4.7
38.
9
10.
6
14.
4
13.
8
17.
5
17.
7
15.
9
1.8

100
25.
2
10.
4
10.
2
4.7
45.
1
17.
8
17.
8

100
29.
5
11.
9

100
25.
5
12.
5

7.6
9.9
43.
0
17.
5
17.
2

5.5
7.5
41.
1
16.
3
22.
3

200
200
200
200
200
200
200
2
3
4
5
6
7
8
In percentage of Total Tax Revenue (%)
100
100
100
100
100
100
100
27.
28.
30.
31.
33.
34.
33.
0
0
6
7
0
0
1
13.
14.
15.
16.
16.
17.
16.
8
0
3
2
6
6
4
10.
10.
11.
6.0
7.1
8.3
9.5
5
6
2
7.2
7.0
7.1
6.0
5.9
5.8
5.5
42.
42.
42.
46.
44.
36.
35.
2
9
8
4
6
5
0
17.
17.
17.
17.
17.
16.
16.
2
8
1
6
1
6
3
22.
22.
23.
27.
26.
18.
16.
4
7
4
2
0
5
5

9.5
13.
3
16.
4
15.
5
0.8

8.3
12.
6
17.
8
14.
6
3.2

2.6
18.
1
18.
3
12.
4
5.9

2.6
18.
6
15.
8
10.
2
5.7

9.2
10.
5
4.5
39.
0
12.
8
11.
4
14.
8
18.
0
18.
8
16.
3
2.5

2.3
16.
8
15.
6
10.
2
5.3

2.4
16.
1
15.
6
10.
4
5.2

1.6
14.
7
11.
7

1.5
13.
5
13.
4

6.9
4.8

9.4
4.0

1.4
19.
3
14.
4
10.
0
4.4

200
9

201
0

201
1

100
33.
6
17.
5
10.
3
5.8
35.
1
17.
0
16.
1

100
34.
1
18.
0
9.5
6.6
35.
8
16.
3
17.
3

100
34.
8
18.
7
10.
1
6.0
34.
6
14.
9
17.
2

2.2
19.
6
15.
9

2.1
18.
8
15.
9

2.2
18.
9
14.
9

2.5
18.
2
15.
7

9.3
6.6

9.5
6.4

8.9
6.0

9.5
6.2

18

Av

A5. Estimates of aggregate and individual tax buoyancy equations

Constant
Coefficient

Coefficient

Total tax revenue

-3.940***

1.180***

(0.4488)

(0.0471)

Income tax revenue

-6.860***

1.360***

(0.4982)

(0.0522)

Individual income tax

-9.110***

1.520***

(0.2959)

(0.0310)

Corporate tax revenue

-7.120***

1.260***

(1.2369)

(0.1297)

Value added tax (VAT)

-4.050***

1.100***

(0.2703)

(0.0283)

Domestic (VAT)

-6.510***

1.260***

(0.4337)

(0.0455)

Import (VAT)

-6.430***

1.270***

(0.5119)

(0.0537)

Import tax

-4.810***

1.080***

(0.7445)

(0.0780)

Excise duties

-6.540***

1.270***

(0.8081)

(0.0847)

Tax category

F-Statistic

Root
MSE

Adjusted
R2

DurbinWatson
statistic

632.130***

0.12

0.98

0.28

680.190***

0.13

0.98

0.63

2406.430***

0.08

0.99

1.10

95.010***

0.32

0.87

0.54

1501.710***

0.07

0.99

0.77

768.440***

0.11

0.98

0.80

559.760***

0.13

0.98

0.35

191.350***

0.19

0.93

2.16

224.280***

0.21

0.94

0.74

Notes: N = 15. Results in parentheses are standard errors of coefficient estimates

Significance at the *10%, **5%, and ***1% levels

19