The Relationship between Corporate Tax Revenue and private Domestic Investment in Tanzania

Abstract

Abstract

Finding the right balance between a tax system and local private investment while fostering an environment that fosters the growth of global trade and commercial investment is one of the challenges that African nations must overcome. In Tanzania, the corporate tax revenue generation is not well archived that cause the private domestic investment rate to decrease. This study aims to investigate the connection between corporation tax income generation and domestic private investment in Tanzania. Tanzania is the only country being studied in this case study, which used a time series research design. From 1998 through 2020, annual time series data was used in the study. The World Bank provides information on private domestic investment as gross fixed capital formation of the private sector as a percentage of GDP, while the Tanzania Revenue Authority website provides information on tax revenue (corporate income tax). Performing the early tests for the lag length selection, co-integrating vectors, multi-collinearity, heteroscedasticity, and test of unit roots. The Error Correction Model was then used to capture the long run and short-run relationships. The findings showed that over the long term, private domestic investment was positive and statistically significantly influenced by corporate income tax. The analysis suggests that Tanzania's government redesign an effective corporate income tax strategy.

Keywords: Tax Revenue, Corporate Tax, Private Domestic Investment