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.

Microfinance Institutions (MFIs) are pivotal in driving financial inclusion and economic growth in Tanzania, particularly for Micro and Small Enterprises (MSEs). A recent study by the Tanzania Investment and Consultant Group Ltd. (TICGL) titled "The Contribution of Microfinance Services to the Development of Small and Medium Enterprises in Tanzania" provides comprehensive insights into how MFIs support SMEs, the challenges they face, and opportunities for growth. This article explores key findings from the 2025 TICGL report, highlighting the transformative role of microfinance in Tanzania’s SME ecosystem.

The Importance of MFIs for Tanzanian SMEs

MFIs bridge a critical gap in Tanzania’s financial landscape, offering accessible credit, savings products, and financial literacy training to MSEs that traditional banks often overlook due to perceived risks. According to the Tanzania National Bureau of Statistics (NBS, 2022), MSEs contribute over 35% to Tanzania’s GDP and employ more than 5 million people. By providing tailored financial services, MFIs empower these enterprises to expand, create jobs, and reduce poverty.

Key Services Provided by MFIs

• Micro-loans: Small-scale loans (often below TZS 5 million) for working capital and business expansion.
• Group Loans: Peer-guaranteed loans, particularly effective for women-led and rural businesses.
• Financial Literacy Training: Programs to enhance budgeting, loan management, and business planning skills.
• Digital Financial Services: Mobile banking and payment platforms for improved accessibility.

Key Findings from the TICGL Study

The TICGL study, conducted between November 2024 and January 2025, surveyed 420 MFIs across Tanzania, providing a detailed analysis of their operations, challenges, and opportunities. Below are some key insights:

Loan Portfolio Allocation

MFIs allocate their loans strategically to support various sectors critical to Tanzania’s economy. Figure 1 illustrates the distribution of MFI loan portfolios:

Figure 1: Loan Portfolio Allocation by Business Sector (2025)

Source: TICGL, 2025

Trade and retail dominate with 30% of loan allocations, reflecting the prevalence of small trading businesses. Agriculture (22%) and manufacturing (18%) also receive significant funding, aligning with national priorities for food security and industrialization.

Loan Size Trends

The study found that 62% of MFI loans are below TZS 5 million, catering primarily to micro-enterprises with quick-turnaround needs. Figure 2 shows the distribution of loan sizes:

Figure 2: Loan Size Distribution Among MSEs (2025)

Source: TICGL, 2025

This trend highlights MFIs’ focus on small, low-risk loans, which are easier to approve and manage.

Default Rates and Risk Management

Loan default rates remain a significant concern for MFIs. The study found that 49% of MFIs report default rates between 5–10%, while 27% face higher risks with rates exceeding 10%. Figure 3 outlines the default rate distribution:

Figure 3: Default Rates for MSE Loans (2025)

Source: TICGL, 2025

To mitigate risks, MFIs employ strategies such as:

• Credit Risk Assessment and Scoring (26%)
• Group Lending and Social Collateral (23%)
• Loan Portfolio Diversification (17%)
• Strict Loan Monitoring (19%)
• Credit Guarantee Schemes (15%)

Challenges Facing MFIs

MFIs face several barriers that limit their ability to serve MSEs effectively. Figure 4 summarizes the key challenges:

Figure 4: Main Challenges in Providing Loans to MSEs (2025)

Source: TICGL, 2025

High borrowing costs (44%) and stringent collateral requirements (29%) further complicate MFIs’ ability to secure capital, while regulatory constraints, such as interest rate caps, limit operational flexibility.

Opportunities for Growth

Despite these challenges, the TICGL report identifies significant opportunities to enhance MFI support for MSEs:

• Government-Backed Funding (28%): Access to credit guarantee programs and concessional loans can expand lending capacity.
• Digital Financial Services (25%): Mobile banking and fintech partnerships can reduce costs and improve accessibility.
• MFI Collaboration (27%): Knowledge sharing and joint initiatives can enhance service delivery.
• Fintech Partnerships (20%): Advanced technologies like AI-driven credit scoring can improve risk management.

Recommendations for a Stronger Microfinance Ecosystem

To maximize the impact of MFIs on SME development, the TICGL study proposes several actionable recommendations:

For MFIs

1. Adopt Digital Lending Platforms: Invest in mobile-based loan systems to streamline operations and reach underserved areas.
2. Enhance Financial Literacy Programs: Offer structured training on budgeting, loan management, and digital tools to reduce default rates.
3. Diversify Funding Sources: Engage with impact investors and development finance institutions to secure sustainable capital.

For Regulators

1. Introduce Tiered Compliance: Reduce compliance costs for smaller MFIs to encourage growth.
2. Flexible Lending Guidelines: Allow alternative credit assessments to include informal businesses.
3. Streamline Reporting: Implement digital reporting systems to reduce administrative burdens.

For Stakeholders

1. Strengthen Public-Private Partnerships: Facilitate collaboration between MFIs, banks, and government agencies.
2. Promote Fintech Innovation: Support regulatory sandboxes to test new financial products.
3. Focus on Gender Inclusion: Develop targeted financial products for women-led enterprises.

Conclusion

Microfinance Institutions are indispensable to Tanzania’s economic growth, empowering MSEs through accessible credit and capacity-building programs. The TICGL 2025 study underscores the need for innovative lending models, digital transformation, and regulatory reforms to overcome challenges like high default rates and limited capital access. By leveraging government support, fintech partnerships, and financial literacy initiatives, MFIs can strengthen their role in fostering sustainable SME growth and driving financial inclusion across Tanzania.

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.

Introduction

Small and Medium Enterprises (SMEs) are the backbone of Tanzania’s economy, contributing 35% to GDP and employing approximately 4-5 million people, which accounts for 50% of the workforce. Representing 95% of all businesses, SMEs drive growth in agriculture, manufacturing, services, and construction. However, challenges such as limited financing, regulatory barriers, and infrastructure gaps hinder their full potential. With targeted reforms, SME contributions could increase to 45% of GDP and employment share to 60% by 2030, transforming Tanzania’s economic landscape.

SME Market Landscape and Economic Contribution

SMEs are integral to Tanzania’s development, but their potential remains underutilized due to compliance difficulties and financial constraints.

Challenges in Regulatory Compliance

• High Compliance Costs: SMEs face complex tax and licensing procedures, ranking Tanzania 141st out of 190 in the World Bank’s Ease of Doing Business index.
• Tax Burden: Over 70% of SMEs report struggles with multiple taxes and costly licensing.
• Formalization Barriers: Regulatory complexity discourages informal SMEs from transitioning into the formal economy.

Investment Opportunities and Constraints

High-Potential Sectors:

• Agribusiness (40% of SMEs): Huge potential due to arable land but faces financing and infrastructure limitations.
• ICT: Growing sector with increased digital services but limited rural access.

Constraints:

• Limited Access to Finance: Only 20% of SMEs secure bank loans due to high interest rates (17-20%) and collateral demands.
• Projected FDI Growth: Improved infrastructure and digital transformation could boost FDI by 50% by 2030.

Resource Accessibility (Financial, Technological, and Training)

• Finance: Only 20% of SMEs access formal financial institutions.
• Digital Access: Mobile money penetration stands at 53%, aiding market reach, especially in urban areas.
• Training Programs: Mostly available in urban areas, leaving rural SMEs underserved.

Projections for 2030

With reforms in financing, regulations, and infrastructure, SMEs could significantly enhance Tanzania’s economy.

Key Recommendations

• Simplify Regulatory Processes: Streamline business registration and tax compliance.
• Expand Access to Finance: Introduce SME-friendly credit options and digital banking solutions.
• Enhance Infrastructure: Invest in transportation, energy, and digital networks, especially in rural areas.

Conclusion

SMEs are critical drivers of Tanzania’s economic growth, but their potential remains untapped due to financial, regulatory, and infrastructural challenges. By simplifying business regulations, improving financial accessibility, and investing in infrastructure, Tanzania can empower its SME sector to contribute more significantly to GDP and employment. Strategic investments in technology and training programs will further support SME growth, fostering a more inclusive and sustainable economy by 2030.