This paper aims at assessing the scope and the desirability of increasing tax on fossil fuel in Tanzania in the context of environmental fiscal reforms. A.F Mkenda, J.K Mduma and W.M Ngasamiaku are the lead authors in this paper. The paper will attempt to tackle three critical issues namely; (i) the extent that tax on fuel can boost government revenue in line with the quest for fiscal reform, (ii) the extent that tax on fuel can lead to reduction in fuel consumption, taking into account the existing substitution possibilities and (iii) the distributional impact of taxation on fuel, particularly its impact on the poor.
The first two points are predictive, relating to the scope of fuel taxation in the context of environmental fiscal reform, while the third point is a normative issue that assesses whether, given its distributional implications, taxation on fuel is indeed desirable.
The paper uses Tanzania’s household budget survey data for analyses, first, by employing the approach developed by Deaton (1988) for calculating own- and cross- elasticity of prices from cross sectional data, secondly by assessing the degree of progressively of fuel tax in Tanzania, and lastly, through estimating incidences of fuel taxes in the country.