Effectiveness of Transfer Pricing Audit on Tax Compliance Among Large Taxpayers in Tanzania
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This study investigated the effectiveness of transfer pricing audits in enhancing tax compliance among large taxpayers in Tanzania, focused on intra-group services and intra-group financing transactions. The study is motivated by the complex operational structures of multinational enterprises (MNEs), which enable profit shifting through manipulated intra-group transactions, thus eroding the Tanzanian tax base. In response, Tanzania implemented Transfer Pricing Regulations in 2018, empowering the Tanzania Revenue Authority (TRA) to conduct targeted audits under the Large Taxpayers Department (LTD).Using a descriptive and inferential quantitative approach, the study systematically sampled 52 tax auditors from a population of 60 TRA officers using Yamane’s formula. Data were collected via structured questionnaires capturing perceived compliance levels for three consecutive years (2020–2022) following audit detections and penalties in 2019. Analysis was conducted using SPSS for descriptive statistics and Microsoft Excel for trend visualization. Descriptive results revealed that compliance likelihood in intra-group services peaked in 2020 at 85.7% but declined to 61.3% in 2021 and further to 32.7% in 2022. Similarly, intra-group financing compliance declined from 77.6% in 2020 to 59.2% in 2021 and dropped sharply to 24.5% by 2022. This trend indicates that audit interventions initially promote compliance but lose their impact over time without further regulatory reinforcement. The study concludes that transfer pricing audits exert a strong short-term influence on tax compliance among large taxpayers, particularly in the first-year post-audit. However, the declining compliance trend suggests the need for continuous and strategic audit interventions. It recommends that TRA increase audit frequency, strengthen audit capacity through technology and training, and implement sustained taxpayer engagement strategies to support lasting compliance gains.
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