By The Respondents Reporter
Tanzania has embarked on a broad reform of its tax system, shifting emphasis from simply increasing tax rates to widening the tax base, strengthening compliance and accelerating the digitalisation of tax administration.
The reforms introduced during the 2025/26 financial period are contained in a series of Finance Acts and other tax measures, some of which draw from recommendations of the Presidential Commission on Tax Reforms.
The commission proposed, among other measures, increasing Tanzania’s tax-to-GDP ratio to 18 percent as the country seeks to mobilise more domestic revenue to finance development.
A key component of the reforms is the digital transformation of tax administration. The Government is introducing mandatory electronic tax administration systems that will require taxpayers to connect to approved digital platforms.
The move is expected to improve transparency, strengthen monitoring and reduce opportunities for corruption and tax evasion. However, businesses and taxpayers who fail to comply with the requirements face penalties under the new framework.
The Government has also adjusted several tax measures affecting businesses and different economic sectors.
For companies operating in the mining, oil and gas industries, the limit on the amount of losses that can be carried forward has been reduced from 70 percent to 60 percent of the current year’s profit.
At the same time, the turnover threshold for businesses eligible for the simplified tax regime has been increased from Sh100 million to Sh200 million.
The reforms have also introduced a tax exemption for qualifying new startups during their first year of operation, a measure intended to encourage entrepreneurship and make it easier for emerging businesses to enter the formal economy.
Some of the reforms are designed to reduce production costs and strengthen domestic value chains through targeted tax incentives.
The measures include VAT relief on locally produced textiles and fertilisers, while selected agricultural inputs, including pesticides, have also received tax treatment intended to support local food production.
The energy sector has similarly benefited from selected exemptions, including those covering equipment used for gas liquefaction and cooking gas cylinders.
The Government has, however, introduced additional measures in areas where it seeks to protect domestic producers and strengthen revenue collection.
These include a 2 percent tax on income from the sale of forest products and excise duties on imported soap and matches, measures aimed partly at supporting local manufacturers.
The tax net has also been extended further into the digital economy, with online platforms and digital intermediaries brought under taxation. Digital content creators have also been subjected to income tax measures.
In 2026, the Government introduced additional adjustments aimed at strengthening the reforms adopted the previous year.
One of the changes reduces the portion of company profits deemed to have been distributed for withholding tax purposes from 30 percent to 15 percent. The measure is intended to encourage companies to retain and reinvest more of their earnings.
However, the Government has increased the tax rate applicable to certain digital services supplied by non-residents from two percent to three percent.
Transfer pricing controls have also been tightened as authorities seek to prevent companies from shifting taxable profits through transactions involving related parties.
Under the new framework, a penalty of 30 percent of an adjusted loss may apply to loss-making companies in certain transfer pricing cases.
The legislation has also established VAT agent rates of three percent for goods and six percent for services.
The reforms have generally received support from sections of the business community, particularly measures intended to simplify government payments and encourage new businesses.
The Tanzania Confederation of Industries has welcomed initiatives aimed at creating a “single window” for payments and supporting new enterprises.
Nevertheless, experts have cautioned that the success of digital tax administration will depend heavily on the availability and affordability of reliable internet services.
They argue that taxpayers in rural and underserved areas could face difficulties complying with digital requirements if connectivity and access to online services remain limited.
The concern is particularly important as Tanzania seeks to bring more informal businesses into the formal tax system.
Overall, the reforms signal a significant shift in Tanzania’s approach to domestic revenue mobilisation from relying predominantly on higher tax rates towards expanding the number of taxpayers, improving compliance and making tax administration more efficient.
The effectiveness of the reforms will ultimately depend on implementation, the accessibility of digital systems and the Government’s ability to balance revenue mobilisation with an environment that allows businesses and investment to grow.