The Effect of Corporate Income Tax on FDI Inflow in the Mining Sector in Tanzania

Abstract

Purpose: Tanzania is one of the mineral-rich countries giving corporate income tax (CIT) concessions to encourage foreign direct investment (FDI). Tanzania's mining industry remains enticing to investors, owing to its expanding diversity. This paper assesses the impact of corporate income tax in the mining sector for the period of 1990 – 2020. The paper also sought to analyse the impact of other determinants of FDI namely, Political stability, Human capital and infrastructure on FDI inflow in the mining sector. Methodology: The study utilized secondary annual time series data collected from the World Bank (WB), Bank of Tanzania (BOT), and Foundation for Studies and Research on International Development (FERDI). The Autoregressive Distribution of Lags (Ardl) estimating approach was used to analyse the short-run and long-run relationship between FDI and corporate income tax as well as the aforementioned variables. Findings: A negative relationship between corporate income Tax and FDI inflow in the mining sector was confirmed. Thus, portraying both short-run and long-run effects of corporate income tax on FDI inflow in the mining sector. Unique Contribution to Theory, Practice and Policy: To encourage and increase FDI inflow in the mining sector, the government of Tanzania requires concerted efforts with relevant authorities that will ensure a fair moderation of corporate income Tax which will in turn increase tax compliance. The concerted efforts carter for factors linked with FDI inflow such as corporate income tax, political stability, human capital quality, and infrastructure. These factors align concurrently with the eclectic paradigm which is the anchoring theory of the study.