Determinants of Tax Collection from Multinational Enterprises in Tanzania

Abstract

Tax collection to finance public expenditure is a major challenge for developing countries. There is a concern that Multinational Enterprises (MNEs) avoid paying taxes by shifting taxable income to countries with low corporate tax rates. The paper explored the factors that determine tax revenue collection from MNEs in Tanzania. Primary data from 140 MNEs respondents, were collected, using a questionnaire and analyzed using multiple linear regression analysis. The findings indicate that the lack of comparable data for price benchmarking of transactions undertaken between MNEs to determine if they are at arm’s length affects tax revenue collection from MNEs. The availability of comparable information is critical as it enables the use by MNEs of an appropriate transfer pricing method hence appropriate tax payments. Practically, the paper highlights the need for the government to work with MNEs to address the challenge of lack of comparable data and consider the effectiveness of alternative methods to transfer pricing methods including the fixed margin method and the use of global minimum tax rate. Not including other factors which may influence tax collection from MNEs, using only primary data and use of a questionnaire to collect data are limitations that may be addressed in future studies.