Context and problem statement

Like many developing economies, Tanzania faces the dual challenge of mobilizing sufficient tax revenue while fostering a business environment conducive to investment and growth. Despite recent tax reforms aimed at widening the tax base and improving compliance, the country’s tax-to-GDP ratio stands at mere 11.9%, below the Sub-Saharan African average and well under the 15% benchmark considered necessary to finance the Sustainable Development Goals (IMF, 2025: 14).

The root cause is not merely enforcement inefficiency, but a widespread lack of trust in the tax system itself - a concern especially acute among businesspeople, who contribute a significant portion of the nation’s tax revenues. Many businesspeople view the tax system as opaque, arbitrary, and burdensome. Complaints of inconsistent enforcement, multiple and overlapping taxes, and unpredictable penalties have led to protests and even temporary shutdowns of businesses, as documented in numerous media reports.^[1] Clearly, tax compliance cannot be achieved through enforcement alone. Understanding and addressing the roots of mistrust must be central to any reform agenda.

Methodology and sampling

Our study is based on data from a large-scale business survey conducted between August and November 2023. A total of 1,409 firms were interviewed across key business hubs - Dar es Salaam, Arusha, and Zanzibar - spanning major economic sectors such as trade (50%), manufacturing (21%), hospitality/tourism (23%), and others (6%). Firms were selected randomly from lists provided by national business associations (Tanzania Chambers of Commerce, Industry Agriculture (TCCIA) and Zanzibar National Chamber of Commerce (ZNCC).

Researchers from CMI and REPOA and policy partners - including the Research Department of Zanzibar Revenue Authority (ZRA), TCCIA, and ZNCC – jointly developed the survey instrument. Data collection was carried out through structured interviews, using questions tailored to the Tanzanian context and piloted for relevance and clarity. The research team applied multivariate regression analysis to identify statistically significant predictors of trust in the tax authority, while controlling for business characteristics (such as location, sector, size, turnover, and VAT registration), and respondent traits (including education, gender, and age).

Key findings

A gap in institutional trust

The survey results indicate relatively low levels of trust in the tax authority. Only 27% of the business respondents express high trust in the institution, placing it behind local governments, parliament, and anti-corruption agencies in terms of perceived trustworthiness. By comparison, religious leaders receive high levels of public confidence, with 65% of the respondents expressing strong trust in them.

What drives trust?

Three key factors emerge as the strongest and most consistent predictors of trust in the tax authority:

• Satisfaction with tax services: Respondents who report higher satisfaction with the services and taxpayer information provided by the tax authority are significantly more likely to express trust in the institution. Clear and accessible information appears to play an important role in shaping perceptions of trustworthiness.
• Perceived fairness: Respondents who view the current Tanzanian tax system for firms as broadly fair - whether very or somewhat - are significantly more likely to trust the tax authority. Perceptions of fairness in the overall tax system appear closely linked to the legitimacy that businesses ascribe to tax obligations.
• Interpersonal trust among businesspeople: Trust in peers strongly influences institutional trust. Only 15% of the respondents believe that “most businesspeople can be trusted”. Where mutual distrust prevails, confidence in formal institutions also erodes. Conversely, where businesspeople perceive their peers as honest and compliant, they are more likely to view the tax system as trustworthy.

Contrary to expectations variables like perceived tax burden, experiences with penalties, or social norms around tax compliance did not show a statistically significant relationship with trust in the tax authority. This underscores the importance of relational and procedural factors over financial or punitive considerations in building trust and fostering compliance.

Implications for policy and practice

The evidence points to an important conclusion: building trust is not a soft alternative to enforcement - it is a core strategy for increasing for increasing compliance and institutional credibility. This demands a shift in mindset and priorities among policymakers and tax authorities.

Four key policy implications emerge:

1. Improve taxpayer services and communication

• Simplify filing and tax payment procedures.
• Ensure clarity and accessibility of information.
• Establish responsive taxpayer helpdesks and feedback mechanisms. 

Why it matters: Satisfaction with tax services is the strongest institutional factor associated with trust. Improvements in service quality can yield immediate and tangible gains in voluntary compliance.

2. Promote fairness and consistency in tax enforcement

• Standardize tax enforcement procedures.
• Make appeal processes transparent and accessible.
• Introduce taxpayer advocacy mechanisms or ombudspersons.

Why it matters: When taxpayers perceive the tax system as fair, they are more likely to comply voluntarily – even in the absence of coercive enforcement.

3. Foster mutual trust within the business community

• Support ethical codes and peer-accountability frameworks through business associations.
• Encourage peer mentoring on tax compliance.
• Facilitate networking platforms where tax knowledge and experiences can be shared.

Why it matters: Interpersonal trust among businesspeople may enhance institutional legitimacy. Peer influence can drive collective compliance behavior.

4. Increase transparency and public engagement around taxation

• Publish clear, accessible reports linking tax revenues to public service outcomes.
• Launch public campaigns on how tax revenues are used.
• Involve private sector actors in fiscal policy consultations.

Why it matters: Demonstrating the tangible benefits of taxation helps align taxpayer contributions with national development outcomes, reinforcing the social contract.

Challenges and limitations

Although the survey offers rich insights, the cross-sectional design limits causal interpretation. For example, while perceived fairness is associated with greater trust, it is also possible that individuals who already trust the authority are more inclined to view it as fair. Future research using panel data or experimental methods are needed to fully establish directionality between trust and its predictors.

Additionally, the study does not fully explore variations across sectors or specific instances of negative tax encounters (e.g., harassment or corruption). Qualitative case studies and disaggregated quantitative data could provide a more nuanced understanding of these dynamics

Conclusion

Trust is not an abstract virtue in tax administration - it is an operational imperative, especially in settings where enforcement capacity is constrained, and voluntary compliance is vital. In Tanzania, businesses’ mistrust in tax authorities poses a serious obstacle to revenue mobilization and broader governance goals.

Yet, the path to building trust is within reach. A trust-based approach, centred on better services, transparent enforcement, and stronger ties within the business community, can transform the tax system into a more effective and equitable institution. Earning trust requires more than enforcing rules. It requires that tax authorities engage with taxpayers in fair and transparent ways.

In doing so, Tanzania can lay the groundwork for a more robust and legitimate tax system - one that not only funds public goods but also reflects a deeper social contract between citizens and the state.

Further reading

Acosta-González, N., and Ribadeneira-García, P. (2025). Tax morale and peer effects. Economics and Business Letters, 14(3): 134-145.

Asri, V., Fjeldstad, O.-H., Katera, L., and Nassary, S. (2025). To trust or not to trust? Taxation from the perspective of businesspeople in Tanzania. CMI Working Paper WP 4-2025. Chr. Michelsen Institute.

Fjeldstad, O.-H., and Sjursen, I.H. (2024). The role of trust and norms in tax compliance in Africa. Chapter 4, Spotlight 4.4 in Human Development Report 2023-2024 (pp. 135-141).

IMF (2025). The business environment and productivity in Tanzania - Evidence from firm level data. In IMF Country Report No. 25/164, Selected Issues (pp. 3-15), prepared by Melesse Tashu and Sebastian Acevedo.

How to cite this policy brief

Asri, V., Fjeldstad, O.-H., Katera, L., and Nassary, S. (2025). Trust in tax administration: Why it mattes for tax compliance.  CMI Policy Brief. Chr. Michelsen Institute.

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This CMI Brief is developed as part of the projects “Successful advances in fiscal architecture in Tanzania” (#314479) and “The role of trust and norms in tax compliance in Tanzania” (#326984), both funded by the Research Council of Norway.