Equity and VAT in Tanzania.

Abstract

It is normally argued that Value Added Tax (VAT) is essentially regressive in the sense that all consumers pay the same amount of the tax per unit of the taxable commodity consumed. In order to introduce some progressivity into VAT it is thus common to provide for preferential treatment to commodities that form a large proportion of the income of poor people. This, on the other hand, results into erosion of the tax base. It is argued in this paper that, such perferential treatment does not result into the intended progressivity, in an underdeveloped country like that of Tanzania. At the same time this preferential treatment greatly erodes the revenue potentiality of the VAT, which is supposed to be the major argument for introducing it in the first place.



African Journal of Finance and Management Vol.7(1) 1998: 22-32