Introduction

As Tanzania ushers in the final fiscal year of its current development plan and prepares for the 2025 general elections, the government has unveiled a budget that is both bold in vision and grounded in pragmatism. Presented by hon. Dr. Mwigulu Nchemba, Minister for Finance, the 2025/26 budget aims to protect economic stability and promote people’s welfare. But at the heart of this year’s financial roadmap lies a deep and strategic reform of the country's tax laws.

This article takes a closer look at the proposed amendments to Tanzania’s tax laws, offering a general view of what these changes mean for individuals, businesses, and the national economy.

Building a fair and inclusive tax system

The tax proposals reflect the government's intent to create a fairer and more inclusive fiscal landscape one where every citizen, enterprise, and economic activity contributes appropriately to national development. A key theme that emerges from the reforms is the principle of shared responsibility. Whether it is a large mining firm, a digital platform, or a motorcycle operator, the new tax measures aim to ensure everyone pays their fair share.

• Under the Income Tax Act [Cap. 332], several structural reforms have been proposed: The proposal to increase the alternative minimum tax (AMT) from 0.5% to 1% of turnover for companies that consistently declare losses has been tabled. This is meant to address non-compliance and improve fairness among large taxpayers.
• It has been proposed that retained earnings will now be included in the legal definition of “equity.” additionally, any retained earnings not distributed after six months will attract a 10% withholding tax. This aims to discourage perpetual profit hoarding and improve dividend flow.
• To support presumptive taxpayers in the transport sector, the government has proposed to introduce a simplified annual tax under the Road Traffic Act: TZS 120,000 for motorcycles and TZS 250,000 for small transport vehicles (guta), with a reduced licensing fee of TZS 30,000 from the previous TZS 70,000.
• To enhance formalization of the forestry sub-sector, ensuring sustainable harvesting of the forest products and addressing challenges in tax collections arising from the purchase of raw salt from holders of a Primary Mining License (PML), it has been proposed that a 3.5% tax be introduced on each consignment of forest products under the Income Tax Act, and a 2% withholding tax will be applicable to purchases of raw salt from artisanal miners.
• For the extractive sector, it has been proposed that a professional and management ‘service fees paid to non-residents will attract a 10% withholding tax (up from 5%), while the deductible loss carry forward is reduced from 70% to 60% to prevent indefinite deferral of tax liabilities.
• In the insurance industry, the withholding tax on reinsurance premiums paid to non-residents will be doubled from 5% to 10%, the first such adjustment in over a decade.
• The gaming and entertainment sector also faces tighter controls. It has been proposed that, advertising commissions for sports betting will be subject to a 10% final withholding tax, and winnings from betting and casinos will be taxed at 15%, up from previous rates of 10–12%.
• Lastly, the 10-year income tax exemption granted to EPZ/SEZ investors on local sales has been abolished. This reflects the government's stance that incentives must be performance-based and time-bound.

Protecting domestic industries and resources

The Government is taking significant steps to support local production and discourage over-reliance on imports. Under the revised Investment and special economic zones framework, goods such as sugar, cement, plastic pipes and roofing sheets are expected to be excluded from exemption lists even when imported as capital goods, thereby encouraging local sourcing and protecting Tanzanian industries.

Importantly, the import duty (Customs Tariff Act [Cap. 121]) has been adjusted to align with the East African Community Common External Tariff (EAC CET) of 2022, with higher rates applied to selected goods. This includes kraft paper, flat-rolled iron and steel, cement and textiles.

In addition, it has been proposed that under the Income Tax Act, local projects such as mining operations with framework agreements will be eligible for strategic investor status, facilitating specific tax and non-tax incentives within a performance framework.

Modernising VAT and embracing the digital economy

With the growing dominance of the digital economy, Tanzania has proposed to update its Value Added Tax Act [Cap. 148] in several strategic ways:

• The VAT rate for online Business-to-Consumer (B2C) services is proposed to be reduced from 18% to 16%, but only where the transaction is digitally verified through an electronic receipt. This supports digitization and voluntary compliance while protecting tax collections.
• Non-resident digital service providers and payment platforms will be explicitly classified as financial intermediaries, bringing them squarely into the tax net.
• It has been proposed that network marketing and online marketplaces will be included in the scope of VAT through an expanded definition of “intermediary services.”
• The government has also proposed to introduce a new VAT collection agency system under which public agencies and government entities will withhold 3% VAT when purchasing from VAT-registered suppliers. This is expected to significantly reduce refund fraud and improve compliance.

In a welcome relief to the agriculture and manufacturing sectors, the following VAT changes have been proposed:

• Zero-rating of locally produced fertilizers for three years.
• Zero-rating of garments and fabric manufactured from locally grown cotton for one year.
• Exemption of VAT on pesticides (specific HS Codes), reinsurance services, and edible oil produced using locally sourced raw materials (for one year).

Excise, environmental levies, and digital inclusion

The 2025/26 budget introduces a rationalised approach to excise taxation through proposed amendments to the excise (Management and Tariff) Act [Cap. 147]. Most notably, rates for non-petroleum products have been adjusted for inflation, in line with section 124(2) of the Act.

In support of local manufacturing, it has been proposed to reduce the excise duty on imported undenatured ethyl alcohol from TZS 7,000/litre to TZS 5,000/litre, while locally produced alcohol from TZS 5,000/litre to TZS 4,000/litre.

Locally produced energy drinks under HS Code 2202.99.00 will be taxed at TZS 134.20/litre, down from TZS 561/litre, and excise on crisps and similar snacks is set at TZS 100/kg for imports and TZS 50/kg for local producers.

Environmental protection also features prominently. The budget reinstates regulations from GN No. 387 of 2021, enhancing the scope of environmental fees. Levies to be introduced on imported heavy machinery (TZS 250,000), mineral value (0.1% of gross market value), and fuels (TZS 10/litre), with the aim of reducing environmental degradation and improving energy security.

A new era of compliance and accountability

To support enforcement, amendment to the Tax Administration Act has been proposed to expand the use of electronic fiscal devices (EFDs) to include digital platforms and transport operators. Penalties for non-compliance have been increased, and a new whistleblower incentive scheme will reward individuals who report tax evasion and corruption. These reforms send a strong message: tax avoidance will no longer go unchecked.

Furthermore, institutions that benefit from tax exemptions, such as EPZ/SEZ investors, will be subject to performance agreements to ensure value for money. The budget removes the 10-year income tax exemption for EPZ firms that sell goods locally, a decision that aligns with the principle that incentives should not be permanent privileges but tools for catalytic growth.

Conclusion

Collectively, these proposed tax amendments are expected to generate over TZS 2.2 trillion in additional revenue. But beyond the numbers, they represent a philosophical shift in how Tanzania funds its development by relying more on domestic efforts and less on donor dependency.

As the Minister aptly concluded, “Our Taxes, Our Development” is not just a slogan. It’s a national call to duty. The 2025/26 tax reforms seek not only to finance roads, hospitals, and schools, but to restore trust in public finance, empower local industries, and build a more resilient economy from within.

Whether you’re a business leader, an investor, a worker, or a small trader, this budget touches your life. It calls on all Tanzanians to walk the talk of patriotism by contributing to the shared goal of prosperity for all.

Dentons EALC East African Law Chambers will unveil the finance bill, 2025 and subsequently the Finance Act, 2025 in order to highlight the changes in law emanating from the 2025/26 Budget. Our focus is to keep you abreast of the key changes in law and how these changes are likely to impact your business since We redefine what is possible and shape the future.