Tax Compliance in Tanzania: The Role of Trust and Norms

Mobilizing domestic revenues is crucial for developing countries to achieve the UN’s Sustainable Development Goals (SDGs). However, tax evasion is a major challenge in many countries. Research shows that laws and regulations do not sufficiently address tax evasion, and that there is a need for approaches that address ‘voluntary compliance’. Voluntary compliance is likely to be particularly important in countries where enforcement capacity is weak. The overall objective of the study is to generate knowledge and research capacity to address the societal challenge of mobilizing more domestic revenue in mainland Tanzania and Zanzibar. We focus on businesses, which have received little attention in research on voluntary compliance, even though companies typically account for most of the tax revenue in most developing countries. We investigate two factors that are potentially important to voluntary compliance: (i) norms that influence willingness and ability to pay tax, and (ii) trust in the tax administration. We investigate personal and social norms for both formal and ‘informal’ taxes (e.g., payments to community and kin) and how these norms interact. The project combines qualitative interviews, taxpayer surveys, administrative tax data and two field experiments targeted at enhancing social norms for compliance and trust in the tax administration.

Mobilizing domestic revenues is crucial for developing countries to achieve the UN’s Sustainable Development Goals (SDGs). However, tax evasion is a major challenge in many countries. Research shows that laws and regulations do not sufficiently address tax evasion, and that there is a need for approaches that address ‘voluntary compliance’. Voluntary compliance is likely to be particularly important in countries where enforcement capacity is weak. The overall objective of the proposed study is to generate knowledge and research capacity to address the societal challenge of mobilizing more domestic revenue in mainland Tanzania and Zanzibar. We focus on businesses, which have received little attention in research on voluntary compliance, even though companies typically account for most of the tax revenue in many developing countries. We investigate two factors that are potentially important to voluntary compliance but have received little attention in the research literature, norms that influence willingness and ability to pay tax, and trust in the tax administration. We investigate personal and social norms for both formal and ‘informal’ taxes (e.g., payments to community and kin) and how these norms interact. The project combines qualitative interviews, taxpayer surveys, administrative tax data and two field experiments targeted at enhancing social norms for compliance and trust in the tax administration. This approach allows identification of norms for compliance and trust in the tax administration, as well as their causal effects on voluntary compliance. The study advances the academic literature on tax compliance and provides stakeholders working to improve tax collection in Tanzania with crucial information. The project is a collaboration between Chr. Michelsen Institute, Institute of Tax Administration, Norwegian Institute of International Affairs, the Norwegian Tax Administration, REPOA, the Royal Norwegian Embassy in Dar es Salaam, and Zanzibar Revenue Board.