Democratisation in Tanzania: no elections without tax exemptions

Abstract

Revenue losses from tax exemptions have become substantial in an increasing number of African countries. We argue that, under conditions of democratisation and economic liberalisation, the growing use of tax exemptions is central to the supply and demand of campaign financing. This argument is explored in relation to Tanzania, where the abolition of one-party rule in 1992 meant reduced state subsidies to parties and growing inter- and intra-party competition for political power through the ballot box. This increased the costs of election campaigns and of keeping together an increasingly fragmented ruling coalition. The subsequent rise in the demand for campaign funding was met in part by a supply of campaign donations from companies and rich individuals, who in exchange could receive tax exemptions and other rents helping them to succeed in business during economic liberalisation. Thus, we find that, around election years when demands for campaign funding are particularly high, tax levels decrease while tax exemptions to private companies and individuals increase. These indicative findings are supported by qualitative observations on the supply and demand of campaign financing in Tanzania.

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