Agricultural Produce Cess in Tanzania: Policy Options for Fiscal Reforms

Rural taxation policy is a major issue in many countries of Africa as they pursue more decentralized forms of governing and at the same time work to enhance the effectiveness, efficiency, and fairness of their tax systems. Tanzania has struggled with this issue since at least 1962, when it expanded countrywide the limited decentralization that had occurred under the colonial regime, then abolished LGAs in 1972 in favor of “Madaraka Mikoani”, only to then rein- state them and enshrine them in the constitution in 1984. With wide powers to set tax policy and practice at local level, made possible by the Local Government Finance Act (LGFA) of 1982,Tanzania soon experienced a dizzying array of taxes and fees, with dramatically differing rates across LGAs. The situation became so extreme that some claimed that Tanzania by the late 1990s had “about 110 local authorities … each with a different tax system” (Fjeldstad and Semoja 2000). A sustained effort at reform culminated in 2003, when the “head tax” and a series of “nuisance taxes” were abolished, and the produce cess was limited to a maximum of 5% (compared to rates as high as 20% in the past).