Does service sector growth influence tax revenue in Tanzania?

Abstract

AbstractThe study of the influence of service sector expansion on tax revenue is critical, but it has received little attention. The majority of the studies focused on how the service sector affects economic growth. This study aims to investigate how Tanzania’s expanding service sector affects tax revenue. This study used autoregressive distributed lag (ARDL) bounds testing to examine the influence of service sector growth on tax revenue in Tanzania for the period 1970–2018. Results show that service sector growth has a positive influence on tax revenue. Specifically, the government service sector and the trade service sector are confirmed to have a positive and significant influence on tax revenue in Tanzania. The business service sector, the transport service sector, and the personal service sector show insignificant results. This study contributes to the service sector and tax revenue literature by providing evidence showing that service sector growth can influence tax revenue. This paper presents a straightforward tax revenue collection model within the service sector, which holds significant implications for tax authorities, government entities, and policymakers. These findings suggest that improving tax policy can be achieved by targeting specific service subsectors.

Keywords

• ARDL
• Sector
• Service
• Revenue
• Tanzania
• Tax