As Tanzania advances toward its Vision 2050 goals, a robust and inclusive tax system is becoming increasingly central to the country’s development strategy. The Tanzania Investment and Consultant Group Ltd. (TICGL), through its recent report “Tanzania’s Tax System and Economic Development (2025–2030)”, sheds light on how the government’s tax reforms are driving economic growth, while also revealing critical systemic challenges that must be addressed.
Tanzania’s economy has shown resilience and promise, with GDP growth projected at 6.0% in 2025 and 7.0% by 2028. Key growth sectors include:
Much of this development has been supported by rising tax revenues. In 2024/25, the Tanzania Revenue Authority (TRA) collected TZS 29.41 trillion, including a record TZS 3.587 trillion in December 2024 alone. This revenue funded critical initiatives such as:
Key Issues Hindering Fiscal and Inclusive Growth
Despite these gains, the study outlines ten pressing issues that must be tackled to ensure sustainable development:
1. Narrow Tax Base
Only 7% of Tanzania’s population is registered as taxpayers. With the informal sector employing 72% of the workforce, vast economic activity remains untaxed. This limited base restricts the country’s fiscal space and puts pressure on the formal sector.
2. High VAT Refund Arrears
Businesses faced TZS 1.2 trillion in unpaid VAT refunds in 2024. These delays affect cash flows, particularly for exporters and SMEs, and hinder business expansion.
3. Excessive Compliance Costs
Complex procedures and audit burdens increase operating costs by 10–20% for private enterprises. This discourages SMEs from entering or staying in the formal economy.
4. Business-Discouraging Tax Rates
The 30% corporate income tax and 10% withholding tax on retained earnings introduced in 2025 significantly burden SMEs. For example, SMEs (95% of all businesses) reported a 15% drop in reinvestment capacity due to this withholding tax.
5. Rural-Urban Disparities
Access to financial services is 85% in urban areas but just 55% in rural regions. This gap affects tax registration, compliance, and equitable access to public services.
6. Public Debt Pressure
Public debt stood at 45.5% of GDP in 2022/23. The fiscal deficit reached 2.5% of GDP in 2024/25, with borrowing of TZS 6.62 trillion domestically and TZS 2.99 trillion externally, highlighting the need for increased domestic revenue.
7. Inequitable Tax Benefit Distribution
Only 30% of eligible smallholder farmers accessed the tax exemptions meant for agricultural productivity. This shows a gap between policy design and grassroots impact.
8. Digital Divide
Although digital tax platforms improved compliance by 12% (2023–2024), poor digital literacy and infrastructure outside urban areas limit effectiveness.
9. Climate Vulnerability
Tanzania risks losing up to 0.5% of GDP by 2050 due to climate-related disruptions. While green taxes were proposed (e.g., TZS 500 billion carbon tax), implementation is still nascent.
10. Tensions with Private Sector
The private sector perceives some reforms—such as the 10% withholding tax—as hostile to reinvestment. This could dampen momentum in sectors like manufacturing, where private investment is essential.
The Way Forward
The report outlines several reforms to address these issues:
Conclusion
Tanzania’s tax system is a cornerstone of its economic transformation agenda. While the country has made impressive strides in revenue mobilization and sectoral development, major structural and operational issues remain. Addressing these through inclusive, technology-driven, and equity-focused reforms is not only vital for achieving Vision 2050 but also for securing a prosperous and resilient future for all Tanzanians.
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:
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:
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.