By Business Insider Reporter
In a decisive fiscal shift, Tanzania’s Finance Act 2025 introduces sweeping tax and regulatory reforms aimed at boosting public revenue without derailing economic growth.
Analysts at Clyde & Co. describe the Act as a strategic step toward enforcing compliance and aligning fiscal policy with long-term national goals.
At its core, they argue, the Act signals an end to lenient tax compliance and unchecked deferrals.
It lays out a blueprint to formalize the economy, strengthen tax administration, and support sustainable development.
Taxing retained earnings
One major reform targets undistributed corporate profits. Companies that fail to distribute after-tax earnings within 12 months will see 30% of those profits deemed as paid out – and subjected to a 10% withholding tax.
This measure discourages profit hoarding and promotes transparency.
The Act also revises thin capitalization rules, redefining equity to include retained earnings. This places pressure on firms with artificially high debt-to-equity ratios – a common tactic to lower tax obligations.
Additionally, the Alternative Minimum Tax rate has doubled from 0.5% to 1%, ensuring loss-making companies contribute at least a minimal amount, regardless of reported profits.
Expanding the tax net
To capture under-taxed sectors, the Act extends withholding taxes to rental payments for vehicles and technical services in the extractive industry.
Taxes on insurance premiums and gaming commissions have increased from 5% to 10%, widening the government’s fiscal reach without heavy audits.
On the consumption side, VAT reforms aim to accelerate digital transactions. A new 16% VAT rate applies to electronic payments by unregistered buyers – 2% lower than the standard rate.
This incentive nudges the economy away from cash, increasing traceability and tax compliance.
Suppliers to government and VAT withholding agents will also face a 3–6% deduction at source, streamlining collection and reducing reliance on voluntary reporting.
Targeting zone-based loopholes
Tax exemptions for businesses in Export Processing Zones (EPZs) and Special Economic Zones (SEZs) are being restricted.
Firms that manufacture in these zones but sell domestically will lose income tax breaks – preserving incentives for genuine exporters only.
Companies listing at least 25% of their shares on the Dar es Salaam Stock Exchange will retain access to a 25% reduced corporate tax rate for three years.
This benefit promotes market participation while rewarding transparency.
New excise duties target non-essential and imported goods – alcohol, pay-TV, fireworks, margarine, and second-hand kitchenware – both to raise revenue and shield local manufacturers from cheap imports.
Beyond taxes, the Act introduces inbound travel insurance for all foreign visitors except those from EAC and SADC countries, channeling funds toward emergency support services.
A new HIV Response Levy will be applied to select sectors, including fuel, mining, vehicle registration, and ticketing, turning public health into a shared economic responsibility.
Rewarding transparency & digitization
Collectively, these reforms reflect a government aiming to modernize its fiscal system – balancing enforcement with incentives, and expanding the tax base without stifling investment.
Clyde & Co. notes that the Act aligns tax law more closely with real economic activity, emphasizing compliance, equity, and long-term resilience.
While challenges remain, Tanzania is clearly tightening its grip on revenue collection – with more precision, less tolerance for loopholes, and a clearer vision for inclusive growth. In essence, the 2025 Finance Act rewards transparency, digitization, and genuine export activities while penalizing tax avoidance, artificial financial engineering, and informal practices. It aims to build a fairer tax system supporting sustainable economic development but tightens the fiscal environment for those previously benefiting from lax compliance.
