This chapter explores the role of interest groups in revenue bargaining in Tanzania. It examines the bargaining over the 2014 VAT Act and shows that the relative bargaining power of the various involved parties affected the outcome of the reform. By creating alliances, business associations and other lobby groups worked purposefully and managed to shape the VAT Act in accordance with their own interests. Despite the dominant governing party’s position, the Government was not able to instruct members of the Cabinet and individual Members of Parliament who proved to be receptive when confronted by an increasingly professional group of lobbyists. Our analysis contributes to the literature on revenue bargaining by documenting bargaining over tax policies and its effects on the reform outcome.  The bargaining around the VAT Act confirms a central claim in the fiscal contract theory illustrating that revenue bargaining may lead to responsive and accountable institutions. However, it could also be argued that the VAT bargains instead demonstrate that uncoordinated public policy and lack of regulation on lobbyism challenged the initial technocratic approach to the reform and resulted in outcomes that are sub-optimal from a revenue perspective. 

Odd-Helge Fjeldstad

Research Professor, Coordinator: Tax and Public Finance

Lise Rakner

Professor at University of Bergen and Affiliated Research Professor