Successful Advances in Fiscal ARchItecture (SAFARI): Evidence from a new tax in Zanzibar

Mobilizing domestic revenue is crucial for governments’ ability to provide public services, but many African countries face huge challenges in raising taxes, particularly in addressing low tax compliance. Consequently, measures to enhance tax revenues without hurting business development receive much attention from policymakers and researchers.  Like other countries in Sub-Saharan Africa, the Government of Tanzania is working to raise more domestic revenue. This project aims to generate knowledge about the underlying reasons for non-compliance in mainland Tanzania and in Zanzibar. To shed light on whether and how the tax system affects business development and compliance, the project has conducted business surveys. Based on the findings from the surveys, the project will conduct follow-up studies with businesses in the hospitality sector. The sector could potentially generate substantial tax revenues, but the tax administration is currently facing major challenges to raise revenues from the sector. 

One challenge is related to the development of the property tax system. In Zanzibar, the Zanzibar Revenue Authority (ZRA) is currently introducing property tax on commercial buildings. In collaboration with ZRA, the project will study how businesses in the hospitality sector perceive the property tax. The project also explores opportunities for evaluating the implementation of property tax using a combination of focus group discussions, taxpayer surveys, and administrative tax data. On the mainland, the property tax has been in place since the 1980s, but only accounts for 0.08% of GDP. The administration of property tax has been oscillating between decentralised and centralised collection regimes. In 2021, the property tax collection was assigned to the state-owned electricity utility company TANESCO but will be transferred back to local government authorities in 2024/2025. We study how the shifts in property tax administration to TANESCO and local government affect businesses using stakeholder interviews.

The project is implemented in close collaboration with research staff from Zanzibar Revenue Authority and REPOA.