A Dissertation Submitted in Partial Fulfillment of the Requirements for Award of the Degree of Master of Laws (LL.M.) Commercial Law of Mzumbe University. 2013.It is expected by the society that they pay tax to raise government revenues so that in return the society is provided with all the services from the government, these are social services , maintaining law and order, ensuring defence and hosting other undertakings which the state feels are better be provided by itself, like health services. Tax payment is not a new idea in Tanzania mainland because it has had taxation system since the turn of the century all with the aim of being a handmaid for raising revenues to meet government expenditure. As stated above the society have their expectations when paying tax, however there are many tax payers who evades taxes not withstanding that there are penalties for that act simply because they feel that the government is not performing well in providing the society with social needs and end up using revenue on other issues. Not all citizens have positive attitude to the act of paying tax, this may be caused by many factors most of which are caused by the government itself by failing to provide social services to the satisfaction of the citizens. Therefore citizens would wish to use any means either to reduce the Tax burden or evade paying tax. The desire to avoid payment of tax need not bring a surprise particularly in developing countries like Tanzania. In the usual case it will amount to no more than a sensible use of the available exemptions and reliefs which are provided in all tax legislation. In other cases, where sums avoided are greater, the methods adopted by the tax planning industry to escape the fiscal net may take on a complexity that is beyond the comprehension of most individuals and may involve schemes which are divorced from reality. Tax avoidance is the use of legal methods to modify an individual's financial situation in order to lower the amount of income tax owed. This is generally accomplished by claiming the permissible deductions and credits. This practice differs from tax evasion, which is illegal. Taxation in Tanzania is based on law, under the Constitution of the United Republic of Tanzania no tax of any kind shall be imposed save in accordance with a law enacted by the parliament or procedure lawfully prescribed and that have the force of a law or by virtue of a law enacted by the parliament. In this study, most of the issues on tax avoidance have been addressed and analyzed including the loopholes that still exist to attract taxpayers to plan to avoid tax and solutions to problem. Reviewing tax laws regularly is of most importance so as to be in line with the fast changing world in business environment like e-commerce, and different means of money transfers like the mobile banking. There is a need to have Tax Laws free from ambiguities in that they should not create loopholes that will attract more and more Tax avoidance acts as it is with transfer pricing provision under the Income tax Act. There is need to improve good governance so that the legitimacy of the government is enhanced, adequate resources need to be provided to promote voluntary taxpayer compliance. Although tax avoidance has the same cost to the nation as it is with the tax evasion, tax avoidance is generally tolerated even encouraged some times. Judicial decisions on legality of tax avoidance have ensured that there is no stigma for indulging in the tax avoidance as it is for tax evasion. However, tax avoidance is equally complex and expensive exercise. Those with no means to hire tax planners are left to suffer in silence the tax burdens they cannot appreciate thus resorting into invoking ways to attack the tax system including corrupt practices by bribing tax officers. It has also been noted that ignorance of tax laws in Tanzania also results from legislative process not being inclusive enough. Enacted Laws are really well disseminated to the public as the passing of tax laws are also bureaucratic and secretive thus TRA still have a duty of advocating for tax laws to public in particular promotion of tax payer education programs that are being conducted by the TRA. Lack of adequate accountability for the Government has impacted negative attitude on tax payers‟ compliance to tax. The Government is perceived to be corrupt as per major corruption scandals in 2008 that were revealed forcing the Prime minister to resign. Tax laws should be harmonized so as to do away with the current multiplicity of tax laws which defeats taxpayers‟ positive perception to tax laws. Multiplicity of tax has been the factor for tax payers to concentrate on ways to escape the tax burden by any means be it legal or illegal. Tax laws in Tanzania do not encourage taxpayers to comply voluntarily with taxes. This study recommends for amendment to section 33 of the Income Tax Act so that it can specify methodology for determining what constitutes an arm‟s length price, there should be in place provisions requiring taxpayer to prepare transfer pricing documentation. At the same time the government should timely act on the enactment of tax instruments whenever loopholes are detected by TRA and other stakeholders. Not only that but also TRA should issue the practice note to clarify what approach it will follow to give effect to the transfer pricing provisions. Tax systems should expand tax base and reduce tax rates because the expansion of the tax base would reach to the extent of full collection of tax and at the same time tax system to reduce multiplicity of Tax laws in the system. There should be a tool in place that would make tax authorities to have access to information especially for cross border transaction for transfer pricing issues, this will help Tax authorities in finding data on transfer pricing when determining whether the transaction price is in accordance with the principles on Transfer Pricing. It becomes difficult for tax officers to gather information for determining the relationship of the transacting companies at a particular time especially where they multinational corporations.