The Impact of Presumptive Tax on Household Income Distribution and Poverty Alleviation in Tanzania: TAZMOD Application
Keywords:
Presumptive Tax, Microsimulation, Poverty, Tax-Benefit ReformsAbstract
The government of the United Republic of Tanzania (URT) has managed to improve domestic revenue mobilization in recent years in order to increase tax revenues in comparison to GDP. This increase also affects presumptive tax positively. This paper analyzes the impacts of social benefit policy reforms, with a focus on presumptive tax effects on government revenue, household income distribution, and poverty in Tanzania. The study uses a static microsimulation model for Tanzania: TAZMOD v2.4. TAZMOD is based on EUROMOD software, and concepts and variables are implemented in a similar way to those used in the SOUTHMOD project. The simulation model was based on amending the upper presumptive tax policy turnover threshold from TSh100,000,000 to TSh50,000,001 (a 50% decrease) and imposing a 7% marginal rate. The sources of the data are the Tanzanian mainland’s 2011/2012 and 2017/2018 household budget surveys. The results reveal that the reforms would have a positive effect on presumptive tax on government tax revenue, household income distribution, and poverty. Likewise, the findings reveal a significant relationship between presumptive tax and the reduction of household poverty.
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