Aug 26, 2025

Tanzania Startup Week Webinar Series: The Tanzania Finance Act 2025

Attachments Tanzania Startup Week Webinar Series: The Tanzania Finance Act 2025
Notes – Tanzania Startup Week Webinar Series: The Tanzania Finance Act 2025

Meeting records Recording

Summary

Elijah Sanga (TZ) presented on Tanzania's strong macroeconomic performance, including

GDP growth and decreased inflation, while also discussing the impact of the upcoming
general election and geopolitical stability on tax policy. Noah SILUNGWE (TZ) detailed
various tax law changes, such as the introduction of an anti-avoidance provision for
undistributed profits, updated thin capitalization rules, and changes to income tax, VAT, and
excise duties. Concerns were raised by David Muhunzi | TSA regarding the 10% withholding
tax on undistributed retained earnings, especially for startups, and the importance of tax
compliance was emphasized by Elijah Sanga (TZ).

Details

●​ Economic Review and Tax Reforms Elijah Sanga (TZ) initiated the session by
discussing key economic issues impacting tax policy in Tanzania, highlighting the
formation of the presidential commission for tax reforms in 2024. This commission
aims to simplify the tax system, reduce the tax burden on small businesses, and
promote government collections, with their recommendations expected to address
existing tax system challenges. Elijah Sanga (TZ) noted that the commission includes
members from the business community and tax practitioners, ensuring that taxpayer
concerns are considered.

●​ Impact of General Election and Foreign Exchange Policy Elijah Sanga (TZ)
emphasized the significance of the upcoming general election in October for tax
policy, as members of parliament are responsible for creating tax laws. They also
addressed the Bank of Tanzania's regulation on the use of local currency for
transactions within Tanzania, effective March 2026, which may have tax implications
for businesses transitioning from foreign currency transactions. Daniel Magomere
inquired about the regulation's impact on businesses importing goods, and Elijah
Sanga (TZ) clarified that the requirement to use Tanzanian shillings only applies to
domestic transactions, allowing foreign suppliers to be paid in foreign currency.

●​ Geopolitical Stability and Mega Projects Elijah Sanga (TZ) discussed the
impact of geopolitical stability in neighboring countries, such as the Democratic
Republic of Congo (DRC), on Tanzania's economy, particularly its role as a gateway
for landlocked countries. They also highlighted the completion of mega projects like
the Julius Nyerere Hydropower Project and the Standard Gauge Railway (SGR),
which are expected to stimulate the economy, improve the business investment
environment, and potentially lead to increased tax collection.
●​ Macroeconomic Performance and GDP Growth Elijah Sanga (TZ) presented
data on Tanzania's strong macroeconomic performance, including a real GDP growth
of 5.5% in 2024, projected to reach 6% in 2025, which is significantly higher than the
Sub-Saharan average. Agriculture, manufacturing, and tourism were identified as key
contributing sectors, along with substantial government investment in infrastructure.
Notable sub-sectors with significant growth in 2023-2024 include entertainment,
electricity supply, and information and communication.

●​ Inflation and Shilling Appreciation Elijah Sanga (TZ) reported that Tanzania's
inflation rate was 3.2% in April 2025, remaining within regional targets. They also
noted the appreciation of the Tanzanian shilling against foreign currencies,
attributing it to strong export performance in tourism and agricultural products, as
well as reduced pressure on foreign currency demand due to increased local
production of previously imported goods.

●​ Revenue Collection and Tax Compliance Elijah Sanga (TZ) reported that the
Tanzania Revenue Authority (TRA) exceeded its collection targets for the year ending
June 30, 2025, indicating sufficient economic activity. They warned that this success
might lead to even higher targets for the following year, increasing pressure on the
TRA and potentially leading to more detailed tax audits to ensure compliance. Most
tax collections come from customs and excise duties, and large taxpayer departments,
underscoring the ongoing conversation about expanding the tax base.

●​ Introduction of Anti-Avoidance Provision Noah SILUNGWE (TZ) introduced a

new anti-avoidance provision in the tax law that allows for a 30% tax on
undistributed profits of an entity if they remain undistributed for 12 months after the
end of the income year. They clarified that this applies to accounting profit after tax
and is at the commissioner's discretion, with a 10% withholding tax on the deemed
distributed profit. Noah SILUNGWE (TZ) noted that while the law is unclear on what
constitutes "good reasons" for retaining profits, business expansion plans or using
retained earnings instead of loans could be considered valid justifications.

●​ Thin Capitalization Rules and Reduced VAT Rate Noah SILUNGWE (TZ)
explained that the definition of "equity" for thin capitalization rules has been
expanded to include positive retained earnings, which can increase the allowable
interest deduction for corporate income tax purposes. They highlighted a potential
conflict between incentivizing positive retained earnings for thin capitalization relief
and the new tax on undistributed profits. Additionally, a reduced VAT rate has been
introduced to encourage online payments, with specifics to be detailed in a public
notice.

●​ Withholding VAT and Mandatory Electronic Receipt Interfacing Noah

SILUNGWE (TZ) discussed the introduction of withholding VAT, where appointed
agents will be required to withhold VAT amounts and remit them to the TRA. They
also addressed the new mandatory interfacing of electronic receipt systems with the
TRA system, noting that non-compliance can result in significant fines.

●​ Changes in Income Tax Noah SILUNGWE (TZ) detailed several income tax
changes, including an increase in the alternative minimum tax rate from 0.5% to 1%
for entities making losses for three consecutive years. They also noted an alignment
in loss utilization rules for the mining, petroleum, oil, and gas industries, where only
60% of taxable income can be utilized as a brought-forward loss. The 10-year income
tax exemption for entities in special economic zones has been abolished for those
selling in the domestic market, retaining it only for exporters.
●​ Changes to Tax Return Preparation and Corporate Income Tax Noah
SILUNGWE (TZ) explained that the mandatory requirement for certified public
accountants (CPAPs) to prepare tax returns now only applies to individuals with a
turnover exceeding 500 million Tanzanian shillings and corporations with a turnover
over 100 million Tanzanian shillings, reducing costs for smaller entities. Companies
newly listed on the Dar es Salaam Stock Exchange (DSE) with at least 25% public
shareholding will now qualify for a reduced corporate income tax rate of 25%, down
from the previous 30% requirement.

●​ Updates to Withholding Tax Rates Noah SILUNGWE (TZ) outlined updates to

various withholding tax rates, including an increase from 5% to 10% for technical or
management services provided to the extractive sector. Payments to non-resident
insurers will now be subject to a 10% withholding tax on premiums. New withholding
taxes have been introduced on the sale of forest produce by individuals at 2%, on raw
salt from primary mining license holders, and on commission payments from sports
betting advertisements at 10%. Payments for hired motor vehicles will also be subject
to a 10% withholding tax.

●​ Tax Administration Act Amendments Noah SILUNGWE (TZ) discussed

amendments to the Tax Administration Act, particularly concerning the objection
process. They clarified that the date of admission for an objection is now either the
day the tax deposit is paid or the date the objection is filed if no payment is required.
They also mentioned that if the TRA responds to an objection within six months, even
if not fully determined, that response can be considered a determination for the
purpose of proceeding with an appeal.

●​ Transfer Pricing Penalties Noah SILUNGWE (TZ) highlighted a new method for
calculating penalties for transfer pricing adjustments when an entity is in a loss
position. They explained that even if no principal tax is delayed due to the loss, a
penalty of 30% of the adjusted loss will be levied, which Noah SILUNGWE (TZ)
acknowledged as potentially unfair. They clarified that this new penalty applies even
if the entity is loss-making, whereas previously, penalties were only applicable when
there was a tax shortfall.

●​ Tax Administration and Income Tax Changes Noah SILUNGWE (TZ) outlined
changes in tax administration, emphasizing clarity on the objection process and
recognition of small-scale traders. David Muhunzi | TSA also touched on corporate
income tax and individual filing changes.

●​ VAT Exemptions and Zero-Ratings Elijah Sanga (TZ) clarified the differences
between VAT exemption and zero-rating, explaining that while both mean no VAT is
paid, zero-rated goods allow for claiming input tax, whereas exempt goods do not.
They detailed extensions of zero-rating for certain supplies like locally manufactured
fertilizers and textiles until June 2028 and June 2026, respectively. Additionally,
Elijah Sanga (TZ) highlighted new exemptions for pesticides and reinsurance
services, and clarified exemptions for piped natural gas for motor vehicles and
cooking gas cylinders.

●​ Changes in VAT Law and Regulations Elijah Sanga (TZ) reported that the
Commissioner General of TRA is now empowered to collect VAT on supplies from
government-assisted entities starting July 1st. They also announced a strict
adherence to the 20th day of each month as the VAT filing deadline, removing
previous leniency for weekends or public holidays. Furthermore, Elijah Sanga (TZ)
explained the introduction of withholding VAT, where appointed agents will withhold
a percentage of VAT on goods (3%) and services (6%).
●​ New Excise Duty and Levy Adjustments Elijah Sanga (TZ) communicated new
excise duty rates, including an increase for pay-per-view services from 5% to 7% and
a 25% duty on imported furniture to support local businesses. They also mentioned
new products subject to excise duty such as ice cream, sausages, and fireworks. The
meeting also covered the reduction of the local government service levy from 0.3% to
0.25% and the abolishment of loading and offloading fees.

●​ Industrial Development Levy and Regional Trade Concerns Elijah Sanga

(TZ) discussed the Industrial Development Levy (IDL), noting its expansion to new
products like kitchenware and construction materials, with rates between 5% and
15% aimed at protecting local manufacturers. They highlighted a controversial change
where IDL now applies to goods originating from East African Community (EAC)
member states, leading to concerns about community trade agreements. Elijah Sanga
(TZ) indicated that despite outcries from neighboring countries, the levy remains in
effect until the law is amended, as Tanzania aims to protect its domestic industries
from cheaper imports.

●​ Withholding Tax on Retained Earnings David Muhunzi | TSA raised concerns

about the new 10% withholding tax on undistributed retained earnings, particularly
for startup firms that reinvest profits into research and development. Elijah Sanga
(TZ) advised startups to document their reinvestment plans thoroughly with a work
plan to convince authorities not to apply the 30% distribution. They noted the
challenge this poses and the need for engagement with the government regarding
differentiating treatment for multinational and startup companies.

●​ Tax Regimes for Startups Elijah Sanga (TZ) highlighted that countries like Ghana
have specific tax regimes for companies with certain turnover levels, offering reduced
rates or compliance obligations. David Muhunzi | TSA agreed, noting that startups
are often treated like corporate companies in taxation, and mentioned Kenya's
startup act and incentives. David Muhunzi | TSA stated that they are working with
the Ministry of Communications and ICT on a dedicated startup policy to establish
definitions and incentives, including those for taxation.

●​ VAT and Import Taxes Elijah Sanga (TZ) discussed the benefits of VAT,
explaining that unregistered entities only pay VAT on the value added, essentially on
their profit. They clarified that for registered entities, VAT incurred on expenses can
be treated as input tax, which does not affect profitability. Elijah Sanga (TZ) also
touched upon import taxes and levies, noting that these are separate taxes paid on
importation.

●​ Importance of Tax Compliance and Consultation Elijah Sanga (TZ)

emphasized the critical need for businesses, especially small ones, to plan their
operations around tax compliance. They warned that neglecting tax obligations could
lead to severe consequences, including business shutdown. Elijah Sanga (TZ) advised
always considering tax implications in day-to-day operations and seeking
consultation when unsure, as poor tax planning can result in significant financial
liabilities.