Small and Medium Enterprises (SMEs) are the backbone of Tanzania’s economy, contributing approximately 35% of the national GDP and employing more than 6 million people across diverse sectors such as retail, manufacturing, services, agriculture, and ICT. Despite this vital role, Tanzanian SMEs face significant hurdles due to a complex and burdensome tax system that undermines their potential for growth, innovation, and formalization.

According to a 2025 report by the Tanzania Investment and Consultant Group Ltd. (TICGL), SMEs are subjected to a corporate income tax of 30%, 18% VAT for businesses with an annual turnover above TZS 100 million (approx. USD 40,000), and a 4% Skills and Development Levy (SDL) on payroll. These taxes are compounded by various local government levies and withholding taxes ranging from 2% to 15%, depending on transaction types.

A nationwide survey of 250 SMEs revealed alarming figures:

• 78% identified high tax rates as a primary obstacle to business growth.
• 76% reported that tax filing procedures are excessively complex.
• 72% operate informally to avoid compliance burdens and associated costs.
• On average, SMEs spend 248 hours annually just on tax compliance activities, often relying on external consultants at an average cost of TZS 1.5 to 2 million per year.
• For some businesses, penalties and dispute-related costs have reached up to TZS 11 million (USD 5,200) over a two-year period due to delayed payments or VAT discrepancies.

These burdens are particularly severe in urban centers. For instance, a retail business in Dar es Salaam with TZS 150 million annual revenue pays around TZS 20 million in corporate tax, TZS 5 million in VAT, and TZS 3 million in municipal levies, consuming over 18% of its income before operational expenses.

The pressure of over-taxation has discouraged reinvestment, job creation, and formalization. About 56% of SMEs admitted to reducing staff or delaying business expansion due to tax-related financial strain. Comparatively, Rwanda, with a flat SME tax rate of 3% on turnover, has seen over 60% compliance growth, showing how tax-friendly regimes foster enterprise growth.

To address these challenges, TICGL’s report proposes actionable reforms:

• Reduce the corporate tax rate for SMEs to 15–20%.
• Raise the VAT threshold or exempt SMEs earning under TZS 200 million.
• Introduce digital tax platforms and mobile tax solutions to ease compliance, especially for rural enterprises.
• Offer tax holidays (e.g., 2–3 years) for startups and businesses in agriculture, manufacturing, and technology.
• Strengthen tax education, particularly for informal businesses considering formalization.

In conclusion, without targeted reforms, Tanzania risks stalling the growth of its most dynamic economic segment. A simplified, inclusive, and supportive tax regime is not only essential for SME development but also critical for expanding the national tax base and achieving the country’s Vision 2025 goals. The time for tax reform is now — and the data makes the case clear.

Introduction

Tax reforms and policy planning play a critical role in shaping Tanzania’s economic landscape. In the 2023/2024 fiscal year, Tanzania recorded TZS 27.64 trillion in tax revenue, marking a 14.47% growth compared to the previous year. However, the tax revenue target of TZS 28.3 trillion was not fully met, signaling a need for enhanced efficiency and compliance strategies. Key contributing sectors included services (28.2%), trade (23.6%), and manufacturing (17.7%).

Despite this growth, businesses in Tanzania continue to face challenges such as high compliance costs, averaging 2% of annual revenues, which disproportionately impact SMEs and sustain a large informal economy (60% of employment). Addressing these barriers through policy reforms can lead to a more sustainable and inclusive economy.

Tax Revenue Growth and Sector Contributions

Tanzania’s tax revenue has been on an upward trajectory, driven by improvements in collection mechanisms.

Key Figures (2023/2024):

• Total Tax Revenue: TZS 27.64 trillion (+14.47% from 2022)
• Major Contributing Sectors:
  • Services (including tourism): TZS 7.8 trillion (28.2%)
  • Trade: TZS 6.54 trillion (23.6%)
  • Manufacturing: TZS 4.9 trillion (17.7%)
  • Agriculture: TZS 1.55 trillion (5.6%)

Challenges:

• Compliance Costs: Businesses spend 2% of annual revenue on tax compliance.
• Ease of Doing Business Score: Tanzania scored 59/100 in 2022, indicating moderate regulatory barriers.
• Corporate Tax Rate: At 30%, it is higher than Kenya’s (25%) and Uganda’s (30%), potentially deterring investment.

Investment Climate and Policy Impacts

Tanzania’s Foreign Direct Investment (FDI) inflows in 2024 stood at USD 1.5 billion, mainly concentrated in agriculture, mining, and energy. Projections indicate a 10% annual growth in FDI, contingent on regulatory improvements.

Key Policy Recommendations:

• Regulatory Simplification: Reduce bureaucratic hurdles for tax compliance.
• Tax Incentives for SMEs: Lower compliance costs and introduce tax breaks for small businesses.
• Enhancing Transparency: Improve predictability in tax regulations to attract investors.
• Integration of Informal Economy: Develop incentives to transition informal businesses into the formal sector.

Future Outlook and Conclusion

By 2030, Tanzania’s economy could see a significant boost with improved tax policies. Projections suggest:

• Tax revenue could reach TZS 40 trillion if compliance and collection efficiency improve.
• FDI inflows could grow to USD 2.8 billion, strengthening investment in key sectors.
• Financial Inclusion: Reducing compliance burdens and simplifying tax procedures will enhance economic participation.

Final Thoughts

While Tanzania has made remarkable strides in tax reforms, further enhancements in policy planning, compliance simplification, and investment-friendly tax structures will be essential to achieving long-term economic sustainability. Strengthening digital tax infrastructure, increasing taxpayer education, and promoting fair business policies can foster a more inclusive and prosperous economy.