The Proposed Transformation of the Local Government Revenue System in Tanzania

Chapter 4 assesses the current local government revenue system in Tanzania and identifies a number of far-reaching shortcomings in the revenue sources assigned to the local government level as well as the broader framework for local government revenue collections. This assessment led to the conclusion that the traditionally “permissive” (open-list) approach to local taxation in Tanzania resulted in a system that virtually lacks any sense of uniformity. Furthermore, (1) local governments are mostly assigned low-yielding taxes; (2) fragmentation of the local tax system causes horizontal inequities and inefficiency; (3) the benefit principle is largely missing as a conceptual foundation for local government revenues; (4) there is an excessive focus on the redistributive impact of local revenues; (5) local revenues are hard to administer and hard to enforce; (6) compliance costs for local taxes are high, and (7) local governments are assigned the least popular and politically acceptable revenue sources. Addressing these problems goes well beyond assisting individual local governments in improving their tax structures and strengthening local tax administrations in a bottom-up fashion. Instead, resolving these shortcomings will demand a comprehensive transformation of the local revenue system.