Budget 2025/26: Tanzania Targets Jobs, Growth, and Domestic Industry Revival

Last Friday, Hon. Dr Mwigulu Lameck Nchemba, Minister for Finance, read the TSh 56.49 trillion (approximately USD 22 billion) budget before Parliament.  GDP growth rose to 5.5% in 2024 (from 5.1% in 2023), driven by energy projects. Inflation dropped to 3.1% below the government’s target of less than 5%, and import reserves remained at USD 5.55 billion, covering 4.4 months of imports. 

In FY 2025/26, Tanzania aims to achieve a GDP growth rate of 6%, while increasing tax revenue to 13.3% and reducing the fiscal deficit to less than 3%.  The budget is focused on four key areas: agriculture, infrastructure, human capital, and improving the business environment. 

Under agriculture, Tanzania aims to expand fisheries and irrigation. In terms of infrastructure, the country has several key projects, including the extension of the Standard Gauge Railway (SGR), the East African Crude Oil Pipeline (EACOP), Air Tanzania Company Limited (ATCL), and ICT backbone projects. Under income tax, the government is seeking to widen the tax net, reduce avoidance by large firms, and encourage more investment in the real economy, rather than holding profits, while raising revenue from undertaxed sectors such as forestry, mining, and betting. 

To this end, the government has increased the alternative minimum tax by .5%. Companies must now pay at least 1% of their sales in tax to avoid tax evasion, even if they are making losses. Companies in the extractive sector are to pay tax on at least 40% of their profits, even if they have incurred past losses. The government has introduced a new tax of 3.5% of the value of every shipment of forest products (like timber or logs). It has removed tax holidays for EPZ/SEZ sales in the local market and introduced new withholding taxes in the undertaxed areas.  Companies must also include retained earnings when calculating their debt-to-equity ratio, so they can stop relying heavily on borrowing to reduce their tax bills.

Tanzania exempted locally made edible oil, pesticides, agricultural tractor parts, newspapers, natural gas (for vehicles), cooking gas cylinders, and reinsurance services from value-added tax (VAT). The government has zero-rated local cotton fabric, garments, and fertiliser, and reduced online B2C VAT to 16%. It has removed exemptions on Bitumen and gaming supplies, called for  3% VAT to be withheld at source and expanded the VAT net to digital marketplaces. 

In effect, this will broaden the VAT tax net while protecting priority sectors such as local industries. Tanzania also aims to improve compliance through technology and withholding. New excise duties have been introduced for processed foods, soaps, matches, e-cigarettes, fireworks, used kitchenware (20%), imitation jewellery (10%) and margarine (TSh 500/kg). Excise has been increased on imported alcohol and energy drinks, and reduced for industrial ethanol and locally produced energy drinks.

The price increases in everyday household items are aimed at broadening the tax base and generating additional revenue from consumption. At the same time, the reductions support manufacturing in specific industries, such as the pharmaceutical industry. A reduction in excise license fees reduces the compliance burden for small-scale manufacturers or traders. Customs and Tariff Adjustments (EAC CET) rates have been adjusted for steel, vegetable oil, tiles, buses, toys, and packaging to protect local industry, promote value addition, and create jobs.

Finally, several legal and regulatory amendments have been introduced as follows: 

• Local Government Finance Act: Reduced service levy to 0.25%, hotel levy to 2%.
• Mining Act: Mandate 20% local gold smelting, and a 0.1% levy for HIV/UHC funding.
• Investment Act: 75% import duty relief on capital goods; restricted items listed.
• Gaming Act: Winning tax increased to 15%.
• Insurance Act: Mandatory travel insurance for non-EAC/SADC visitors.

A TSh 10/litre fuel levy, vehicle import levies (based on engine size), transport ticket levies, and machinery import levies have also been introduced. In summary, the budget has aimed to widen the tax base and enhance compliance while balancing other national interests, such as job creation, industrialisation, and service delivery. 

A Comparison of Budgets Across the EAC