Journal of Tax Reform | 2026
Authors: Athanas N.; Nguvava H.E.
DOI: 10.15826/jtr.2026.12.2.252
Journal: Journal of Tax Reform
Year: 2026
Publisher: Ural Federal University
Document Type: Article
Open Access: All Open Access; Gold Open Access
Cited by: 0
Foreign direct investments (FDI) are considered to be catalyst for fast tracking economic growth and broadening tax base. Governments are engaging policies, tax reforms and incentives to attract FDIs due to the assertion that they have great advantages to the host country. Despite the big number of FDI inflows in developing countries particularly in Tanzania; it is unclear to what extent FDI inflows contribute tax revenue especially in the presence of the numerous tax reforms and incentives. This study investigates the contribution of FDI as a determinant of corporate tax revenue in emerging economies, while inflation and per capita income were used as control variables to isolate the independent effect of FDI. Using Auto-Regressive Distributed Lag Model, the study analyzes data from Tanzania over the period of 26 years from 1999 to 2024. The results reveal that in the long-run, FDI has a positive and statistically significant effect on the corporate tax revenue (coefficient = 0.514, p = 0.037) for the period under consideration. However, during short-run, there are negative and significant coefficients for lagged changes in FDI suggesting that FDI may initially suppress corporate tax revenues and shrink the tax base. This study provides implications that while FDI enjoy tax incentives, it may result in unhealthy competition in the economy and jeo-pardize domestic tax revenue collections. These call for development and implementation of effective policies, strategies and regulatory frameworks to tap full potential of FDI without jeopardizing revenue mobilization. The policies should attract quality and long-term FDIs to ensure alignment with domestic revenue mobilization goals. The tax administration should be strengthened including monitoring mechanisms of tax incentives offered to FDI to protect domestic revenue base. © Athanas N., Nguvava H.E., 2026.
corporate sector; developing economy; foreign direct investment; Tanzania; tax revenue