The Cause and Effect Relationship of Value Added Tax (Vat) and Gross Domestic Product in Tanzania Main Land

Abstract

The objective of this study was to assess the cause and effect relationship of value added tax (VAT) and Real gross domestic product (RGDP) in Tanzania. The study adopted quantitative descriptive design. This study used only secondary data collected from Tanzania Revenue Authority (TRA) from the year 2000 to 2021 and National Bureau of statistics (NBS). The time series data gathered were tested for stationarity and analyzed quantitatively through ordinary least square method by using Stata 14 statistical software. The findings indicated VAT [R 2 = 0.9867, Ln (RGDP) =12.21854+0.4133458ln (VAT)] significantly and positively contribute to country’s GDP. A number of recommendations were made from this study, Tanzania should intensify its efforts to collect VAT by providing more education to taxpayers, and improve consistency administration of VAT collection using EFD. It was also recommended TRA to enhance usage of electronic tax filing system in order to improve service delivery and foster accountability by closing off opportunities for revenue leakage and improve voluntary compliance. It was further recommended Policy makers in Tanzania to look on possibilities of reducing VAT rate to 16% so as to reduce distortion on social welfare.