This paper investigates the phenomenon of tax exemptions in Tanzania and Uganda, two countries that undertook wide-ranging economic reforms in the 1990s aimed at turning around the underlying structures of their respective economies and achieving economic transformation.

The paper interrogates the officially declared basis for granting exemptions – the quest to attract investment and expand national economies – as against other contending explanations. While a World Bank survey of investors found that favourable taxation regimes was not among the most important consideration for investor decision-making, policymakers and government officials in African countries remain convinced that they need to grant incentives in order to attract desperately needed foreign capital, technology and expertise to grow the productive sectors.

Why do poor countries give huge tax exemptions to local and international businesses? Do governments gain or lose by granting investment incentives, typically tax exemptions, tax holidays, free land, among other incentives or there are economic and perhaps political gains that accrue from policies aimed at attracting investment? These are important questions for countries that are perennially in need of financial resources to meet both budgetary spending and development expenditure.