Factors Influencing Tax Payments by Multinational Enterprises in Tanzania

Abstract

This paper examined the determinants of tax payments by Multinational Enterprises (MNEs) in Tanzania. The quantitative study applied an explanatory design on a panel sample of 107 MNEs from 2017 to 2019, making a total of 321 firm-year observations. Informed by the Coase theory of the firm and the financing model of the firm, transaction costs, leveraging, and interest expense deductibility tax incentive were independent variables. The collected and coded data were analyzed descriptively using mean score and inferentially using multiple regression technique. The study found that transaction costs and leverage positively and significantly affect tax payments and interest expense deductibility had no effect. The study concludes that MNEs transaction costs are critical as they affect tax payments. Practically, the study highlights the need for the government to address the high cost of doing business in Tanzania but keep the cost of tax avoidance high. Also, the study highlights the value of financial sector development and considerate deleveraging regulations. Empirically, the study contributes as the first to consider the impact of the cost of doing business on tax payments by MNEs. The study truncated the data observation up to 2019, and failing to analyze the Covid 19 era and shock (2020, 2021, and 2022) with a limited number of factors affecting tax payments by MNEs. Future research needs to consider addressing these gaps.