In an effort to drive economic growth and bolster domestic revenue collection, Tanzania is in the process of launching a series of tax reforms aimed at expanding its tax base - a move expected to benefit businesses, individuals, and the nation’s public finances alike.
If one considers the tax to be a pie, then currently, only some “slices” of this pie are taxed, leaving significant segments untouched. By widening the base, the authorities hope to generate additional revenue without the need to raise existing tax rates. This strategy promises a more equitable distribution of the tax burden, ensuring that everyone contribute their fair share.
When comparing Tanzania's tax system with other African countries, there are several interesting observations that can be made. Using the tax-to-GDP ratio, Tanzania's tax to GDP ratio has historically been lower than the average for East African Community (EAC) countries and other low- middle income countries. For instance, over the 2018-2022 period, Tanzania had an average tax-to-GDP ratio of 11.49%, compared to the EAC average of 13.14%, the low-income countries' average of 14.13% and the low middle income countries’ average of 15.54%.
More recent data shows that in 2023, Tanzania's tax-to-GDP ratio was 11.49%, still below the EAC average ratio of 12.74%, the low-income countries' average of 11.74% and the low middle income countries’ average of 14.51%. This indicates a need for Tanzania to broaden its tax base to improve revenue collection and economic stability[1].
In a bid to address long-standing fiscal challenges, President Samia Suluhu Hassan established the Presidential Commission on Tax Reforms in 2024. This expert panel, drawing talent from governance, academia, finance, law, and the private sector, has been tasked with reviewing the current tax laws and recommending modern practices. Their mandate includes a comprehensive analysis aimed at incorporating more economic activities into the taxable sphere.
Some recommendation for the Commission would be an enhancement of the Value Added Tax (VAT) system as this can easily bring into tax sectors which are untaxed due Tanzania’s sizable informal sector whilst the government is taking steps for formalise it. Simplified registration procedures and incentives for small and medium-sized enterprises (SMEs) could be another approach to encourage more businesses to step into the formal economy.
Digital innovation is playing a key role in these reforms. The Tanzania Revenue Authority (TRA) has rolled out electronic tax systems and fiscal devices to ensure accurate sales reporting. An online filing system simplifies tax return submissions, while the taxation of digital services—initiated in 2022—ensures that digital service businesses contribute to the national revenue.
Recent policy changes under the Finance Act of 2024 have introduced several key measures aimed at broadening Tanzania's tax base. Notably, the definition of "digital content" now includes various electronic forms, subjecting payments to creators to a 5% withholding tax. Additionally, a 3% withholding tax applies to digital asset platform owners on payments for digital asset transfers. Royalties paid to resident sports entities, or the Tanzania Football Federation are now subject to a 5% withholding tax. These amendments reflect the government's efforts to enhance and increase revenue collection from various sectors in the country.
Improving the efficiency of the tax administration remains a priority. A pilot risk-based audit by the TRA has apparently increased tax revenue by 15%. The increase was mainly observed in corporate income taxes, particularly from the services sector, highlighting the potential benefits of targeted compliance measures[2]. Experts also suggest that rationalising tax expenditures - by reviewing exemptions and incentives—could further enhance tax revenue without burdening taxpayers.
Economists and business leaders alike are optimistic about the reforms. A broader tax base is expected to lead to more predictable tax rates, spurring business investment, job creation, and overall economic expansion. By simplifying the tax code and fostering a fairer system, the government hopes to build trust and encourage voluntary compliance.
As Tanzania moves forward with these comprehensive reforms, the continued commitment to an inclusive, sustainable fiscal framework appears poised to set the stage for long-term economic stability and growth.
[1] https://data.worldbank.org/indicator/GC.TAX.TOTL.GD.ZS?locations=TZ
[2] https://www.wider.unu.edu/sites/default/files/Publications/Research-brief/PDF/RB2021-4-improving-efficiency-tax-collection-tanzania.pdf
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