Indexing terms Corruption Tax evasion Tax administration Incentives

Tax systems in most poor countries are characterised by widespread corruption and tax evasion. Substantial amounts never reach the treasury (Alm et al., 1991; Galtung, 1995; Ul Hague & Sahay, 1996). This erosion of the tax base has several detrimental fiscal effects. The consequences of lost revenue to the funding of public services are of special concern (Tanzi, 2000a). In addition, corruption and tax evasion may have harmful effects on economic efficiency in general (Tanzi, 2000b), and income distribution in particular (Hindriks et al., 1999; Slemrod & Bakija, 1998). In order to increase revenue and curb corruption, a number of African countries have implemented comprehensive reforms of their tax administrations over the past ten to fifteen years (Devas et al., 2001). Tanzania introduced a major reform in 1996 with the formation of a new revenue authority – Tanzania Revenue Authority (TRA). The choice of a revenue authority model, which originates in the so-called executive agency model, aimed partly to limit direct political interference by the Ministry of Finance, and partly to free the tax administration from the constraints of the civil service system.1 This was considered to be essential for several reasons of which the most important were to pay rates above the civi