Tanzania’s Tax Reforms: Between Expanding the Tax Base and Protecting Businesses
By Adonis Byemelwa
In 2025-2026, Tanzania began a restructuring of its tax system. Rather than relying mainly on higher rates, the government has focused on widening the tax base, digitalising administration, improving compliance and bringing more economic activity into the formal system.
The shift matters because Tanzania’s tax challenge is not how much existing taxpayers pay, but how many economic actors contribute, how predictable the rules are and how much compliance costs businesses.
The Presidential Commission on the Review of Tax System Reforms submitted 284 recommendations in March 2026 after identifying a narrow tax base, frequent policy changes, overlapping mandates, administrative weaknesses and concerns about taxpayer services. The commission’s work gives the reforms a wider purpose: raising domestic revenue while rebuilding confidence in the tax system.
The revenue challenge is substantial. The IMF estimates that Tanzania’s tax revenue was 12.5% of GDP in FY2023/24 and projects that the government’s Medium-Term Revenue Strategy could raise tax revenue to 13.7% of GDP by FY2026/27, with the strategy generating about 2.5 percentage points of GDP in additional revenue over FY2024/25-FY2026/27.
That progress is meaningful, but it also shows how far the country remains from an 18% ambition. The reform therefore needs to be judged not by revenue collected, but by whether additional revenue comes from a broader and more productive tax base.
Digitalisation is central to that effort. The government is strengthening the use of ICT, artificial intelligence, big data and blockchain in tax administration, while plans include integrating government systems and developing a free mobile application for electronic receipts aimed at reducing compliance costs for small and medium enterprises. The objective is clear: fewer manual processes, better information and more efficient enforcement.
Yet digitalisation is not automatically simplification. Businesses must have reliable connectivity, compatible accounting systems and staff able to use the new platforms. Tanzania’s private-sector experience already shows why transition matters. The Tanzania Private Sector Foundation reported that firms preparing for the Integrated Domestic Revenue Administration System faced issues involving system compatibility, data migration and procedural clarity. If such problems persist, a reform intended to reduce administrative costs could temporarily create new ones.
The government has tried to make formalisation less burdensome. The turnover threshold for the simplified taxation regime was raised from Sh100 million to Sh200 million, while newly registered businesses were granted a one-year tax grace period.
These measures can encourage entrepreneurs to enter the formal economy, but their success should be measured beyond registration numbers. The important questions are whether new firms survive beyond the grace period, create jobs, invest and remain compliant. The one-year relief has been welcomed by former Chief Secretary Amb Ombeni Sefue, who chaired the Presidential Commission.
The business side is more complicated than a simple story of government versus private enterprise. The Confederation of Tanzania Industries has welcomed measures supporting local production, including VAT treatment for locally produced textiles, fertilisers and edible oil.
But CTI is simultaneously advocating lower electronic tax-stamp charges and the removal or reduction of fees, levies and taxes that raise the cost of doing business. Its position suggests that industry supports reform where it improves competitiveness, while remaining concerned about costs and predictability.
A concrete example comes from Tanzania Breweries Limited. In discussions with Parliament through CTI, TBL acknowledged that a reduction in Electronic Tax Stamp costs and the introduction of a three-year tax calendar had improved predictability and planning.
At the same time, the company identified continuing concerns over tax objections, transfer-pricing adjustments and other regulatory issues. The message is important: businesses can welcome reform and still argue that parts of the system remain costly or uncertain.
The reforms also seek to protect domestic producers. VAT incentives for selected locally produced goods and excise measures on some imports are intended to encourage local value addition, reduce dependence on imports and strengthen industrial competitiveness. The policy logic is sound, particularly where domestic production can create jobs and deepen supply chains. CTI says several of these measures followed its own proposals to government.
But protection has a trade-off. If local producers become more competitive, consumers may eventually benefit through lower prices and better supply. If protection merely shields inefficient producers, consumers can face higher prices. Tax incentives follow the same principle. A VAT benefit is most valuable when it lowers production costs, encourages investment or reaches consumers. Its success cannot be assumed simply because a tax has been reduced or removed.
The digital economy creates another test. Tanzania is strengthening taxation of online platforms and non-resident digital service providers. The Finance Act 2026 increased the rate applicable to certain payments to non-resident providers of digital services from 2% to 3%. Such measures are increasingly necessary as economic activity moves online, but the burden does not disappear. Digital businesses may absorb the cost, reduce margins or pass it to users through higher prices and fees.
A broader question is tax fairness. Bringing more people and businesses into the system can improve equity if previously untaxed economic activity begins contributing to public services. But if enforcement falls disproportionately on formal businesses because they are easier to identify, the system may discourage formalisation. The reform will therefore need better identification of untaxed activity, not simply more pressure on taxpayers already visible to the authorities.
Predictability is equally important. The Presidential Commission highlighted frequent policy changes and administrative problems, while the government has pledged to create a more modern and transparent tax environment. For investors, a predictable tax burden can be easier to manage than an uncertain one. A lower tax rate does not necessarily compensate for rules that change unexpectedly, lengthy disputes or unclear administrative interpretations.
The consumer must remain part of this equation. Taxes and tax incentives eventually affect prices, wages, investment and employment. A measure that protects a local manufacturer but raises household prices may help one objective while weakening another. Conversely, a reform that reduces compliance costs and stimulates production can broaden the tax base indirectly by helping businesses grow.
The strongest test, therefore, is measurable performance. Tanzania should track changes in tax revenue as a share of GDP, the number of active taxpayers, the survival of newly formalised businesses, private investment, employment, tax disputes, compliance costs and consumer prices.
These indicators would show whether the reforms are producing a wider, healthier tax base rather than simply collecting more from the same taxpayers. Current IMF projections provide an important baseline, but they are projections, not proof that the reforms have already delivered their promised results.
The government has a legitimate need to mobilise domestic resources. The 2026/27 fiscal-policy framework explicitly combines broadening the tax base with improving the business environment, supporting small and medium enterprises, encouraging investment and strengthening voluntary compliance. The challenge is that these objectives can reinforce each other only when taxation does not undermine the productive activity that generates future revenue.
Tanzania’s tax reform is not simply about collecting more revenue, but about how it is collected and from whom. Its success will depend on expanding the tax base while reducing compliance costs, improving predictability and protecting productive investment.
If successful, the reforms can strengthen public finances without burdening businesses and consumers. If they fail, higher costs could weaken the economic activity needed to generate future revenue. The goal is clear: collect more while making it easier for legitimate businesses to survive, invest and grow.
