Impact of Corporate Income Tax on Economic Growth in Zanzibar

Abstract

This study investigates the impact of corporate income tax on economic growth in Zanzibar from 1990 to 2021. The study employed the  Vector-Error Correction Model (VECM) to examine the longrun and short-run impact of corporate income tax on economic growth. On the  other hand, the Granger-Causality-Test was used to determine the causal relationship between the corporate income tax and  economic growth in Zanzibar. The study used variables such as corporate income tax, valueadded tax, excise duty, and economic growth  from 1990 to 2021. The results revealed that, in the long run, corporate income tax had a significant positive effect on economic growth.  However, there was no short-run impact of corporate income tax on economic growth in Zanzibar during that period. The Granger  causality test was employed to determine a causal relationship between corporate income tax and economic growth, and the results  indicated a unidirectional causal effect from economic growth value to corporate income tax. Furthermore, the study recommends that Governments should consider reducing tax rates since lower tax rates can encourage investment, promote entrepreneurship, and  stimulate economic activity. In addition, the government should engage in a complete reorganization of the tax administrative machinery  to reduce tolerable problems of tax evasion and avoidance.