This paper analyses the effect of observed food price changes on household consumption (welfare) in Tanzania and from this simulates the welfare effect attributable to tax (tariffs and VAT) reforms. The three rounds of the Tanzania Household Budget Survey (1991/92, 2000/01 and 2007) are used to apply Deaton’s method based on median unit values (prices) and household budget shares. The results indicate that real price increases over 1991–2007 have reduced welfare of the average household by 20 per cent of 1991 income, and the loss was fairly evenly distributed between the 1990s and 2000s. The welfare loss was much greater for the poor, especially the rural poor (a 27 per cent reduction), compared to the non-poor (in particular the urban non-poor, who suffered a five per cent loss). Although we cannot establish explicit links between tax reforms and domestic commodity price changes, to assess the extent to which welfare changes can be explained by tax reforms we simulate the effects of tax changes on domestic price changes. The simulation shows that tax reforms (tariff reductions) offset the welfare losses for all household groups, especially in the 1990s; although the differences were small, the urban poor benefit more in relative terms from tax reforms whereas the rural poor benefit least (the effect on the non-poor was similar irrespective of location).