Approximately 85 per cent of all employment in Sub-Saharan Africa is informal, and Tanzania is no exception. Scholars who celebrate the informal sector’s role in absorbing labour often overlook a less flattering dimension: informality strangles the state’s capacity to raise revenue.
The informal economy ranks among the three most significant sources of tax revenue loss in Tanzania.
A 2021 report by ActionAid Tanzania titled Sealing the Gaps, corroborated by the Economic and Social Research Foundation, estimates that Tanzania lost Sh6.5 trillion in foregone tax revenue that year alone due to the untaxed informal economy.
To contextualise this, unresolved tax appeals drained an even larger Sh7.9 trillion from the public purse in the same period.
This analysis focuses on the informal sector rather than on tax appeals because the latter is a procedural problem that can be solved through legislative reform. The informal sector is a behavioural challenge that demands a far more imaginative response.
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Tanzania’s tax-to-GDP ratio remains stuck at around 13.3 per cent, well below the national target and the Sub-Saharan African average of 16.1 per cent.
Nudges, not mandates
The intellectual toolkit for addressing behavioural challenges has been enriched by economists Richard Thaler and Cass Sunstein, who introduced the “nudge” — any modification to the architecture of choice that steers people towards a decision without restricting their freedom.
Its influence on public administration has been profound and far-reaching.
Taxation has not been immune to the nudge movement’s appeal. Several studies have deployed nudge-based interventions through reminder messages, educational campaigns, and television advertisements, and a meta-analysis in The Economic Journal confirms these produce measurable compliance gains.
Yet these approaches share a critical weakness: they tell taxpayers what to do without answering the question every rational actor asks first — what is in it for me?
A natural field experiment in Scandinavia showed nudges can generate substantial compliance gains, but the conditions there — formal record-keeping culture and institutional trust — differ markedly from Tanzania’s context.
The question is how to restructure economic participation so that tax compliance emerges as a natural by-product rather than an imposed obligation.
The receipt illusion
Multiple studies in Tanzania document a consistent pattern: sellers do not issue receipts, and buyers do not request them.
The Tanzania Revenue Authority (TRA) has invested heavily in campaigns urging consumers to demand electronic fiscal receipts, but these campaigns fail to grapple with the underlying behavioural logic.
People demand receipts only when there is a concrete, immediate benefit — proof for a refund, documentation for reimbursement, or evidence in a dispute.
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Visit any petrol station in Dar es Salaam and the evidence is visible in the bins: receipts discarded moments after being printed, because they serve no purpose for the individual who received them.
The TRA’s campaigns are, in effect, asking consumers to perform a task that benefits the state whilst offering nothing tangible in return. What the authority actually requires is not a physical receipt but a record of the transaction — and there is a smarter way to generate one.
Data without paper
The answer may already exist in the pockets of millions of Tanzanians. Mobile money has become the backbone of Tanzania’s digital economy, with the widely used Lipa Namba merchant payment system generating a continuous, auditable trail of transaction data automatically — without any action required beyond the payment itself.
Mobile money does not merely facilitate commerce; it documents it.
The Bank of Tanzania’s data reveals a positive relationship between mobile money volumes and government revenue collected.
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The TRA’s recently launched Integrated Domestic Revenue Administration System (IDRAS) consolidates merchant payment data, taxpayer registration, and returns into a single digital platform.
If the state can access transaction records through the mobile money ecosystem, compelling individuals to demand paper receipts becomes largely redundant.
Cash still reigns
There is, however, a substantial obstacle. Analysis of the Financial Sector Deepening Tanzania (FSDT) dataset reveals that 75.19 per cent of 9,915 survey respondents still prefer cash when paying for goods and services.
The persistence of cash is not irrational — it reflects the real costs of mobile money payments, which can deter adoption among lower-income users and small traders operating on thin margins.
The policy implication is not to impose new taxes on mobile money, which would be counterproductive. Research on Tanzania’s 2021 mobile money levy demonstrates precisely this: transaction charges reduce uptake, particularly among small businesses most sensitive to cost.
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What is needed instead is a deliberate effort to make mobile money cheaper and more convenient than cash — reducing the friction that currently makes cash more attractive, and allowing the digital transaction record to do the work that paper receipts have conspicuously failed to do.
Time for action
Tanzania is navigating a confluence of external pressures: diplomatic tensions prompting donor countries to reconsider aid commitments, the United States’ reduction of HIV/AIDS and malaria funding, and a new government ministry not budgeted for in the current fiscal year.
These circumstances make strengthening domestic revenue collection not merely desirable but necessary.
These ideas were first presented at a conference hosted by the African Studies Programme at the University of Toronto Scarborough Campus in June 2025.
The technology exists, the transaction data is being generated, and the regulatory infrastructure is taking shape.
What remains is the political will to treat the informal economy not as a problem to be policed but as a resource to be engaged with.
Francis Nyonzo is a Fulbright Alumnus, an economist and theorist whose research interests span the digital economy, development economics, social justice, and human rights. He is available at francisnyonzo@gmail.com. These are the writer’s own opinions and do not necessarily reflect the viewpoints of The Chanzo. Do you want to publish in this space? Contact our editors at editor@thechanzo.com for further clarification.
