Tanzania’s Tax Strategy: Expanding the Base for a Stronger Future

Following the reading of Tanzania’s 2025/26 budget, the government has outlined plans to expand its tax base to meet ambitious fiscal targets. The budget sets a total revenue collection goal of TSh 34.1 trillion, with the Tanzania Revenue Authority (TRA) tasked with raising TSh 32.2 trillion from tax revenues and TSh 1.79 trillion from non-tax sources. This marks a notable increase from the previous year’s target of TSh 30 trillion.

To meet this goal, Parliament has actively debated new measures aimed at broadening the tax base. Central to these discussions is a series of reforms aimed at distributing the tax burden more equitably and ensuring that all economic players contribute their fair share of the tax burden.

In 2024, President Samia Suluhu Hassan established the Presidential Commission on Tax Reforms to evaluate existing tax laws and propose modern solutions. This commission is mandated to provide a comprehensive analysis of the tax system, with a particular focus on integrating untapped sectors of the economy into the formal tax net.

What to Expect

Formalising the Informal Sector

The Commission has proposed enhancing the value-added tax (VAT) system to incorporate informal sector players. This initiative aims to increase the number of registered taxpayers. Simplified registration procedures and incentives for Small and Medium Enterprises (SMEs) are expected to encourage voluntary compliance. Relief measures include VAT exemptions for reinsurance transactions in the insurance sector and zero-rated VAT for specified textiles (for one year) and agricultural products (for three years). A VAT collection mechanism will also be introduced to collect 3% VAT from payments made to registered vendors.

Digital Taxation

To capture more revenue from the digital economy, the Finance Act, 2024, expands the definition of digital content and services. It introduces a 5% withholding tax on digital content creators and a 3% tax on digital asset platforms. Royalties paid to resident sports organisations, including the Tanzania Football Federation, are now also subject to a 5% withholding tax. Broader VAT coverage now includes online marketing platforms and non-resident digital payment services. From September 2025, a reduced VAT rate of 16% will apply to business-to-consumer online transactions.

E-Administration

Digital innovation is at the heart of TRA’s modernisation efforts. The rollout of electronic tax systems, including online filing and fiscal devices, has simplified compliance and improved transparency. These systems aim to streamline tax reporting and strengthen enforcement, particularly for digital service providers. Notably, a pilot risk-based audit programme increased corporate income tax revenue by 15%, with the service sector seeing the largest gains. Experts suggest that further rationalisation of tax exemptions and incentives could boost revenue collection without increasing the tax burden on compliant taxpayers.

Finance Act and Finance Bill Measures

The Finance Act, 2024. and the proposed Finance Bill, 2025, are central pillars in Tanzania’s tax reform agenda. The 2024 Act introduced withholding taxes on digital earnings and sports royalties. The 2025 Bill goes further, proposing a 10% withholding tax on undistributed retained earnings, rental income, gaming promotion winnings, and mineral purchases. It also introduces new taxes on forest products, raises capital gains taxes for non-residents, and requires informal traders to register for Taxpayer Identification Numbers (TINs). The Bill also promotes digital tax administration and includes provisions for VAT withholding by public agencies, alongside a reduced VAT rate to encourage digital transactions.

Fiscal Decentralisation and Local Government Empowerment

In early 2025, the government emphasised the role of Local Government Authorities (LGAs) in mobilising domestic revenue. Prime Minister Kassim Majaliwa called on LGAs to diversify their revenue sources and become less dependent on central transfers. The government encourages local authorities to formalise local businesses, streamline tax collection, and set realistic, performance-based revenue targets. These efforts are expected to improve both revenue generation and public service delivery at the community level.

Phasing Out Tax Incentives and Exemptions

Tanzania is also phasing out generous tax incentives that have limited revenue growth. One major change involves removing the 10-year income tax holiday previously granted to firms in Export Processing Zones (EPZs) and Special Economic Zones (SEZs), particularly those selling goods within the domestic market. This move is projected to raise an additional TSh 75.9 billion in the 2025/26 fiscal year. Additionally, the Finance Bill, 2025, proposes to limit various exemptions, reinforcing the government’s commitment to a fair and balanced tax system.

Combatting Illicit Flows and Promoting Tax Justice

Tanzania has also prioritised tackling illicit financial flows. At the 2024 Policy Forum conference, experts recommended strengthening systems for information exchange, formalising informal employment, and taxing non-salary allowances. The conference underscored the importance of closing loopholes that allow tax avoidance and evasion. These reforms align with the government’s broader agenda of promoting transparency, equity, and accountability in public finance.

Conclusion

Tanzania’s ambitious tax reform agenda for 2025/26 reflects a deliberate strategy to broaden the tax base, improve compliance, and ensure equitable contribution across all economic sectors. Through formalising the informal economy, digitalising tax administration, rationalising incentives, and empowering local governments, the country aims to strengthen its domestic resource mobilisation. If effectively implemented, these measures have the potential to create a more sustainable and inclusive fiscal framework, laying the foundation for long-term economic growth and stability.