TANZANIA AS A FUTURE PETRO-STATE: DO PETRO-EXPECTATIONS CHALLENGE THE ORDINARY TAX SYSTEM? Presentation made at the ICTD Annual Centre Meeting Arusha, 2014

1. TANZANIAAS A FUTURE PETRO-STATE
DO PETRO-EXPECTATIONS CHALLENGE THE
ORDINARY TAX SYSTEM?
Alexander Cappelen (NHH)
Odd-Helge Fjeldstad (CMI)
Donald Mmari (REPOA)
Ingrid Hoem Sjursen (NHH/CMI)
Bertil Tungodden (NHH/CMI)

2. Tanzania as a future petro-state (2014-2019)
• Programme for
- research
- capacity development
- policy dialogue
• Collaboration between
- REPOA
- Chr. Michelsen Institute (CMI)
- National Bureau of Statistics (NBS)
• Funded by the Norwegian Embassy in Dar es Salaam
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3. Background and motivation
• Large reservoirs of gas discovered offshore in Tanzania
• If international companies choose to invest
à Significant revenues to the government
• Opportunity to improve social and economic conditions
• Management of the resources is a challenge
Ø How to avoid the resource curse?
Ø Tanzanian experiences from mining industry
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4. Background and motivation:
The importance of «ordinary» tax
• Countries rich in natural resources collect less “ordinary” tax
• “Ordinary” tax system is important
- Source of revenue generation and diversification
- Promotes accountability & dialogue between government & citizens
à Social fiscal contract
• Continued efforts to expand and enforce the “ordinary” tax
system is likely to be a key in successful management of
resources
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5. Research questions
• “Ordinary” tax crucially depends on
1. Citizens’ support for and willingness to pay tax
2. Government’s willingness to enforce «ordinary» tax
• Both are likely to be affected by petro-expectations
• This research project asks:
Do petro-expectations challenge the “ordinary”
tax system in Tanzania?
• Currently we focus on taxpayers
Are taxpayers public support for, and willingness to pay,
tax affected by petro-expectations?
• Methods: FDGs and survey experiment
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6. Preliminary findings: Focus group discussions
• Views and expectations about gas discoveries
- Positive: employment, improved livelihoods, electricity, social services
and supply of gas for cooking
“It will be the end of poverty in Tanzania (…)”
- Negative: no effect for common people, experience from Songosongo,
management
“I see that we have big expectations, but these will only be realized
when we closely manage the resource and avoid selfishness.”
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7. Preliminary findings: Focus group discussions
• Views about the statement:
“In today’s Tanzania, it is wrong for people not to pay taxes to the
government”
• Respondents agree
“If we want reliable security and good social services we have to pay
taxes”
“Tax is everything”
• But:
«(…) people do not pay taxes because rates are too high»
“It would have been proper to see taxes improving social services
such as education and health, in contrast these services are below
standards which discourage taxpayers.”
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8. Survey experiment pilot
• Survey: interviews of small business owners and “regular” citizens
• Experiment: random assignment to treatment or control group
• Treatment:
Tanzania has discovered large reservoirs of natural gas. If investments in
production facilities are made, commercial production can begin in 2022.
Estimates show that the revenues to the government will be large, up to 10
trillion Tanzanian shillings annually. This is equivalent of the entire
government expenditure today.
• Differences between groups have a causal interpretation
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9. Preliminary findings: Survey experiment pilot
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• The higher the mean, the more the respondents disagree
TABLE I:
Mean of outcome variables
Wrong not
to pay tax
Taxes
should be
reduced
VAT
should be
reduced
Basic
foods
exempted
Revenue
distribution
Gas revenue
distribution
Mean
2.434
1.768
1.687
1.182
2.521
3.112
(0.149)
(0.0993)
(0.101)
(0.0581)
(0.159)
(0.175)
Obs
99
99
99
99
94
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10. Preliminary findings: Survey experiment pilot
• Result: No significant differences between the two groups
• Possible explanations
- No effect of petro-expectations
- Treatment is not strong enough
- Sample too small
• Lessons from the pilot
- Practically feasiable design
- Need to rethink our treatment
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11. Thank you for your attention!
Comments and suggestions are highly appreciated
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