The tax exemptions of aid agencies and the institutional capacity of Tanzania Revenue Authority

Start date: 31 March, 2013 End date: 9 June, 2013 Project type: Master's Thesis (prior to 2018) Project code: A22356 Countries: Tanzania Institutions: University of Copenhagen (UCPH), Denmark Grant recipient: Martin Brehm Christensen Total grant: 18,000 DKK


The thesis is based on a qualitative single-case study in Tanzania. The research data comprises twenty-one semi-structured interviews with governmental aid agencies (donors) and public authorities in Tanzania conducted between April and June 2013.  

The thesis examines how tax exemptions imposed by donors effect state-building in Tanzania as well as donors’ administration of development projects. Here, state-building is seen as the process by which a state enhances the perceived legitimacy, the political stability and the administrative, fiscal and institutional capacity to interact constructively with its society. The thesis concludes that donors’ tax exemptions imply: (1) small but unequivocal administrative costs to donors, (2) widespread abuse by Tanzanian taxpayers, (3) substantial administrative costs to tax authorities in Tanzania, and (4) increased corruption of tax inspectors. Moreover, the thesis discusses how a vigorous public debate on tax exemptions in Tanzania fails to mobilize a public demand holding the government accountable for its tax exemption policies.

Further, the thesis explores why donors choose to tax exempt their development projects. This part of the thesis is guided by Scharpf’s Actor-Centered Institutionalism and March and Olsen’s sociological new institutionalism and reaches the following conclusions: (1) donors’ tax exemption policies are primarily a prerogative of the donor agencies’ headquarters and determined by top-down policymaking and political considerations in donors’ home-countries, and (2) administrative considerations, local experiences as well as international debates seem to exert only indirect, if any, influence.
Discussing the temporal and spatial invariance of donors’ tax exemption policies, the thesis points to the principle of national sovereignty and institutional path-dependency as plausible factors of importance.