Introduction

Tanzania's recent tax reforms and policy adjustments are creating transformative shifts in its economic landscape. The fiscal year 2023/2024 witnessed a tax revenue increase of 14.47%, reaching TZS 27.64 trillion, underscoring a robust yet evolving economic environment. While achieving substantial growth, Tanzania still faces challenges in compliance, investment attraction, and equitable contributions across sectors.

Key Achievements and Challenges

1. Tax Revenue Growth and Sector Contributions
   • Tax revenue rose by TZS 3.5 trillion from the previous year, with the services sector leading at 28.2% of contributions (TZS 7.8 trillion), followed by trade (23.6%) and manufacturing (17.7%).
   • The agriculture sector, employing over 65% of the workforce, accounted for only 5.6% of the revenue. This discrepancy calls for reforms to harness agriculture’s full economic potential.

Figure 1: Tax Contribution by Sector

1. Services: 28.2%
2. Trade: 23.6%
3. Manufacturing: 17.7%
4. Agriculture: 5.6%
5. Compliance and Ease of Doing Business
   • Compliance costs average 2% of annual revenues, disproportionately burdening SMEs, which also face challenges from regulatory complexity and frequent policy shifts.
   • Tanzania’s Ease of Doing Business score stands at 59, reflecting moderate barriers such as high corporate tax rates (30%) compared to Kenya’s 25%.
6. Investment Climate and Foreign Direct Investment (FDI)
   • FDI inflows in 2024 reached USD 1.5 billion, primarily in agriculture, energy, and mining, with an anticipated 10% annual growth.
   • Persistent issues include regulatory inconsistencies and limited infrastructure, particularly in transportation and energy.

Future Projections and Policy Recommendations

1. Growth Projections for 2030
   • Tax revenue is expected to almost double to TZS 40 trillion.
   • FDI inflows may reach USD 2.8 billion with regulatory enhancements.
   • The Ease of Doing Business score could improve to 70 through streamlined tax systems.

Figure 2: 2030 Projections

1. Tax Revenue: TZS 40 trillion
2. FDI Inflows: USD 2.8 billion
3. Agricultural Growth: 8% annually
4. Manufacturing Growth: 7% annually
5. Policy Recommendations
   • Simplify Tax Processes: Streamline procedures for SMEs, reducing compliance costs.
   • Educate and Empower: Raise awareness about tax incentives to increase accessibility for businesses.
   • Focus on Inclusivity: Extend support to the informal economy to integrate it into the formal tax system.
   • Stabilize Regulatory Environment: Predictable policies can foster investor confidence and long-term planning.

Conclusion

Tax reforms and policy planning remain central to Tanzania’s economic trajectory. By addressing systemic barriers and promoting inclusivity, the country can unlock sustained growth across key sectors like agriculture, tourism, and manufacturing. Proactive reforms could establish Tanzania as a competitive investment destination in East Africa.