Exploring the relationship between government tax revenue and economic growth in Tanzania from 1996 to 2024

Abstract

This study explores the relationship between
gross domestic product (GDP) and key tax
revenue components in Tanzania, focusing on
their impact on economic performance. Utilizing
the ARMA model, the research highlights how
GDP is influenced by its own past values and
various tax sources, including domestic valueadded tax (VAT), VAT on imports, and domestic
excise duty. The results revealed that these
consumption-based taxes significantly contribute
to GDP growth, underscoring their vital role in
driving economic performance. In contrast, PayAs-You-Earn (PAYE) and excise duties on imports
show limited or insignificant effects, suggesting
that direct and trade-related taxes have a less
pronounced impact. The study’s approach
effectively captures the interactions between tax
revenue and economic growth, providing
valuable insights into their contributions. Key
findings showed the importance of strengthening
tax compliance systems and enhancing domestic
production to maximize the benefits of VAT and
excise duties. The study advocates for policies
that broaden the tax base, improve trade
facilitation, and modernize tax administration to
support sustainable economic growth.
Additionally, it underscores the necessity of
adapting fiscal policies to evolving economic
conditions, contributing to the discourse on
effective tax policy and economic development in
Tanzania.