Institutional Barriers to Small-scale Business Development: A Need for Flexibility in Tanzanian Tax and Regulatory Systems

Abstract

An enabling institutional framework for entrepreneurship should reduce transaction costs and create incentives for innovations and long-term business perspectives. In Tanzania, a mismatch is observed between economic policy reforms and restructuring of the institutional framework. The transition from state-centred to market-led development, if not properly managed, provides disincentives. This is particularly true with most of the small-scale entrepreneurs. The mismatch between the slowly changing institutional framework and the fast moving economic policy reforms constrains entrepreneurial endeavour and also raises transaction costs. Based on in-depth interviews with fifteen entrepreneurs, a number of prohibitive taxes and regulations had been identified. Main policy recommendations made are a ’one-stop’ registration system to be established, the taxing system is streamlined, and that networking and resources pooling are facilitated.